Domestic Computer Manufacturing: A Lot Smaller Than We Thought

Includes: DIA, SPY
by: Michael Mandel

The moral of the story: Why we need to spend more money on economic statistics, not less.

For the past couple of years, the BEA and Census Bureau have been reporting an apparently odd fact: Domestic computer manufacturing was not only alive but growing. To be specific, until last Friday the official numbers were showing that domestic computer makers shipped almost $50 billion worth of computers from U.S. factories in 2011, the highest level since 2001. Final sales of domestic computers, adjusted for price changes, were supposedly up 94% since 2007.

Now, these numbers always seemed a bit suspicious to me. I mean, every computer that I ever picked recently was made overseas. So the idea that domestic computer manufacturing was thriving seemed off.

Now the statistical agencies have finally come to the same conclusion. Based on the results from the 2010 Annual Survey of Manufactures, the Census Bureau on May 18th revised shipments of domestic-made computers down–way down. Shipments of computers from domestic factories in 2011 are now being reported at only $18.5 billion, almost two-thirds less than the previous 2011 figure. Take a look at this chart.

(Click to enlarge)

Here’s another way of looking at the revision. The top (red) line tracks domestic computer shipments before revision, and the bottom (blue) line tracks after revision. These numbers are not adjusted for price changes. If I adjusted for the price drop in computers, final sales of domestic computers decline by 28% from 2007 to 2011, rather than rising by 94% like the pre-revision numbers showed.

(Click to enlarge)

This is no ordinary revision. The sharp fall in price of computers, combined with the supposed growth of domestic computer shipments, gave computers on outsize influence on both manufacturing stats and the whole economy.

There are four important points here.

1) A big chunk of those computer shipments were supposedly going into domestic non-residential investment. Post-revision, either the U.S. investment drought was deeper than we thought, or imports of computers were a lot bigger (see the recent PPI piece on Hidden Toll: Imports and Job Loss Since 2007).

2) The U.S. shift from the production of tangibles to the production of intangibles (think the App Economy) has been even sharper and more pronounced than we realized.

3) Budget cutbacks for economic statistics, such as the House Republicans are proposing, would increase the odds of big revisions like this one.

4) Bad data leads to bad policy mistakes, especially at times of turmoil. We need more funding for economics statistics, rather than less.

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