U.S. Manufacturing Leads Current Economic Growth As It Has For 15 Years

by: Mark J. Perry

For the last year or so, I've made the case (along with others) that the U.S. manufacturing sector is at the forefront of the economic expansion based on all relevant measures of economic performance: Profits, output, employment and unemployment. For each of those variables, the U.S. manufacturing is leading the overall economy with greater growth in after-tax profits, greater growth in after-profits per employee, greater output growth, greater employment growth, and a lower unemployment rate.

Click to enlarge:

Using annual data from the BEA series "Real Value-added by Industry" (in constant 2005 dollars) through 2011 (and estimates for 2012), I'm now reporting that the U.S. manufacturing sector has actually been leading the overall U.S. economy for at least the last 15 years, based on annual growth rates in inflation-adjusted output growth. My estimates in growth rates for 2012 are 4% for real manufacturing value-added and 2.2% for real GDP.

The top chart above shows that in each of the 13 non-recessionary years since 1997, the real growth rate in manufacturing output was greater than the growth rate of real GDP! Only in the three recessionary years of 2001, 2008 and 2009 was manufacturing growth below real GDP growth. Over this 16 year period, the average growth rate in real manufacturing output was 3% compared to the average growth of 2.3% for the overall economy.

The bottom chart compares the level of inflation-adjusted output for the manufacturing sector to the level of real output for the overall economy (GDP) from 1997 to 2012 (estimated), when both series are set to equal an index value of 100 in 1997. With an estimated growth rate of 4% this year for U.S. manufacturing, U.S. factory output in 2012 will be above the pre-recession 2007 level by about 3%, and it's highly likely that manufacturing output in the first four months of 2012 is already ahead of the 2007 peak. On a cumulative basis since 1997, manufacturing output this year will be above the 1997 level by 47.5%, compared to a cumulative growth in real GDP of only 38.2%.

Bottom Line: The U.S. manufacturing sector isn't just at the forefront of the current economic expansion, it's been at the forefront of economic growth in the U.S. economy in every non-recession year for the last 15 years, and by a non-trivial difference of 0.7% higher growth per year on average.

Update: Both manufacturing output and GDP are measured in constant, 2005 chained dollars using the BEA series "Real Value Added by Industry."