Seeking Alpha
Macro, economy, Professor
Profile| Send Message|
( followers)  

Despite downturn and dire outlook for factories, value of American-made goods still leads world.

WASHINGTON -- It may seem like the country that used to make everything is on the brink of making nothing. In January, 207,000 U.S. manufacturing jobs vanished in the largest one-month drop since October 1982 (see chart above). Factory activity is hovering at a 28-year low. Even before the recession, plants were hemorrhaging work to foreign competitors with cheap labor. And some companies were moving production overseas.

But manufacturing in the United States isn't dead or even dying. It's moving upscale, following the biggest profits, and becoming more efficient, just like Henry Ford did when he created the assembly line to make the Model T.

The U.S. by far remains the world's leading manufacturer by value of goods produced. It hit a record $1.6 trillion in 2007 -- nearly double the $811 billion in 1987. For every $1 of value produced in China's factories, America generates $2.50.

So what's made in the USA these days?

The U.S. sold more than $200 billion worth of aircraft, missiles and space-related equipment in 2007. And $80 billion worth of autos and auto parts. Deere & Co. (NYSE:DE) sold $16.5 billion worth of farming equipment last year, much of it to the rest of the world. Then there's energy products like gas turbines for power plants made by General Electric (NYSE:GE), computer chips from Intel (NASDAQ:INTC) and fighter jets from Lockheed Martin (NYSE:LMT). Household names like GE, General Motors (NYSE:GM), IBM, Boeing (NYSE:BA), Hewlett-Packard (NYSE:HPQ) are among the largest manufacturers by revenue.

Several trends have emerged over the decades:

  • America makes things that other countries can't. Today, "Made in USA" is more likely to be stamped on heavy equipment or the circuits that go inside other products than TVs, toys, clothes and other items.
  • U.S. companies have shifted toward high-end manufacturing as the production of low-value goods moves overseas. This has resulted in lower prices for shoppers and higher profits for companies.
  • When demand slumps, all types of manufacturing jobs are lost. Some higher-end jobs -- but not all -- return with good times. Workers who make goods more cheaply produced overseas suffer.

Once this recession runs its course, surviving manufacturers will emerge more efficient and profitable, economists say. More valuable products will be made using fewer people. About 12.7 million Americans, or 8% of the labor force, still held manufacturing jobs as of last month. Fifty years ago, 14.6 million people, or 28% of all workers, toiled in factories.

Using slightly different data than the AP article, the chart above shows U.S. Manufacturing Output (Gross Value) from The Federal Reserve, and U.S. Manufacturing Payroll Employment from the BLS (via Economagic), monthly from 1972-2009. In the last 37 years, manufacturing output in real dollars has more than doubled, while manufacturing employment has dropped by more than 26%, resulting in an almost tripling of the amount of manufacturing output per manufacturing worker in the U.S., from less than $80,000 in 1972 to almost $240,000 per worker today (see chart below).

It's certainly the case that the U.S. leads the world in overall manufacturing output, and it's probably the case that when it comes to manufacturing output per person, nobody in the world comes close to the U.S.

You hear from a lot of people that the U.S. can't be a job-creating, world-class economy without a thriving and expanding manufacturing sector. In fact, except during recessions, the U.S. continues to produce more and more manufacturing output year after year. But because of increases in worker productivity year after year, we can produce more output with fewer workers.

It's a lot like the trend in agriculture that took place starting in the 19th century. We produce more and more food every year with fewer and fewer farm workers, due to increases in productivity. Instead of bemoaning the loss of manufacturing or farm jobs, we should be celebrating the increasing productivity of the American worker!


Thanks to Bob Wright.

Source: Made in USA Is Alive and Well