More Bad News for Manufacturing

Posted by: Michael Mandel on October 05

According to this morning’s employment report, U.S. manufacturing jobs dropped below 14 million for the first time since 1950. Yes, you read that right, one nine five zero. Manufacturing jobs just keep leaking away, with no sign of a bottom.

Of course, the official numbers appear to say that manufacturing output is still increasing, despite the decline in jobs. In fact, according to the BLS, manufacturing output is at an all-time high, more than 7% above where it was in 2000, despite having lost more than 3 million manufacturing jobs. And manufacturing output, according to the official numbers, is supposedly 5 times greater than it was in 1950, despite the fact that big chunks of American industry no longer exist.

I don’t believe the official numbers. I think that offshoring is playing tricks with the numbers. If a company offshores half or two-thirds of its production process, and still does the final assembly here in the U.S., the BLS counts it all as manufacturing output. Call it “offshoring illusion”.

I think there’s a good chance that manufacturing output, correctly measured, is shrinking. More about this later.

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Reader Comments

Kevin F

October 5, 2007 03:55 PM

Well we'll all await the next Mandel Hypothesis with bated breath. Though it wouldn't surprise me if ramped-up productivity exactly accounts for this phenomenon. As Heidi Toffler predicted two or three decades ago, manufacturing would go the way of agriculture: still plenty of it occurring in the US, just not involving much of the labor force.

Though I'm not sure an end is NOT in sight, unless the dollar strongly recovers soon. You read the automotive press, every vehicle manufacturer and their uncle is feeling the need to ramp up US production, just based on currency. Surely that must be affecting other industries also.

I'd guess the largest impediment to THAT would be the lack of labor available, since all those former blue collar workers are in nursing school now.

Joe Cushing

October 5, 2007 10:20 PM

Have you seen the Star Wars prequels? In one of them, there was a factory that had no workers. That is where we are heading. It wouldn't' be an exaggeration to say that 2 people or sometimes 0 people do the job of 30 people just 20 years ago. Robots do everything in a car plant. They stamp, they move parts from one press to another, they drive hi-lows, they weld, they paint, they assemble, and more. Parking lots that were full in the 80s are nearly empty today--even when the plant is running at full speed. Every year, they retire people and don't replace them.

Brandon W

October 6, 2007 11:45 AM

Wouldn't this also create an illusion of higher productivity from U.S. workers than is actually the case? I.e., the BLS says output is stated as X, as produced by Y employees. However, if X isn't as high as we've been thinking all these years, then productivity numbers aren't as high as we've been claiming, either. This would explain how we're getting "high productivity" out of lazy overpaid Americans. It may be that they're even more overpaid than we thought. On the other hand, if the US Dollar keeps spiraling down, it may become dirt cheap for global companies to employ U.S. labor.

wyler

October 7, 2007 08:49 AM

" . . .manufacturing would go the way of agriculture . . . "

I still see U.S. veggies in the supermarket aisles but few "made in USA" in the other aisles (until COSTCO inaugurates its Airliner department, of course).

Eric H

October 7, 2007 02:43 PM

Bill Waddell argued this same issue on Cafe Hayek a while back.

http://cafehayek.typepad.com/hayek/2006/05/whos_a_nothink_.html

Pay specific attention to the analysis Bill pointed out in this:

http://www.bls.gov/fls/chinareport.pdf

Specifically, he quoted this:

"Conceptually, the impact of offshoring is more pronounced in manufacturing measures than in the business sector measures, provided the domestic manufacturer is purchasing the offshored goods or services as inputs. (As with the business sector, the complete loss of manufacturing production to an importer of finished goods leaves productivity largely unchanged.) If a domestic computer manufacturer switches from domestic to foreign suppliers of intermediate inputs such as computer memory chips or call center services, real manufacturing sectoral output is unchanged. Because U.S. jobs are lost (all other things unchanged), labor productivity will rise. If the U.S. manufacturer switches most of its production to off-shore facilities, labor productivity might rise substantially."

Kevin

October 7, 2007 05:28 PM

"Robots do everything in a car plant. They stamp, they move parts from one press to another, they drive hi-lows, they weld, they paint, they assemble, and more."

I've toured a car plant recently. (In England, actually.) I saw a lot of both robots and people there. One reason for the people was that the robots seemed to break down very frequently, which would result in a team of technicians rushing in to nurse the robot. Those poor guys were running around all over the plant all day long.

Kartik

October 7, 2007 10:37 PM

Outsourcing the manufacturing might be in the best interest of the US, but if the US currency continues to depreciate against major currencies the cost of imports would increase and might make the US goods costly and uncompetitive in the market. That’s a huge fear looming on the American manufacturing sector.

Kartik (the old one)

October 8, 2007 01:18 PM

Why not just use the ISM Manufacturing numbers? That shows sluggishness, but still a little growth.

But if Manufacturing continues to shrink while services continue to grow, so what? If Services are already 80% of the economy, and have been growing far faster, why not have it become 85? 90%?

Why not?

Justin

October 12, 2007 04:58 PM

A lot of manufacturing in the US is for home and home related items. The real estate downturn and of itself will cause a decline in manufacturing.

As for the efficiencies of manufacturing here versus abroad with our dollar going down and with Chinese costs rising (labor costs are up and quality controls will make prices go up even more), things will probably level out.

Of course, increased mechanization all around the world does eliminate some jobs.

Carlos

October 14, 2007 12:45 PM

America successfully shifting our jobs to China and India during the past 7 years. It is not only labor jobs, but all the engineering jobs as well. We are ok from bad news for manufacturing.

Joe Cushing

October 25, 2007 12:12 AM

What's got you tied up? Working on a big story?

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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