Manufacturing Growth: Much Worse than We Thought

Good article: thanks for this. It clears up a bit of my cognitive dissonance between the qualitative and quantitative information I've been getting from different sources on manufacturing.

Michael, I am beginning to feel that the reason I am drawn to your blog is that you keep vindicating the notions I have but can't quite prove. Now that you've established that the manufacturing picture is just as ugly as I've suspected, here are a couple of other areas that, on the surface at least, seem to me to be out of whack and I wish you could address (not really requests to you, just fantasies or hopes that these areas might coincide with your areas of interest or journalistic need).

Most of the more or less unavoidable expenses of living have become normalized (i.e. have consistent cost) across the U.S. -- gasoline, heating fuel, electricity (?), health care (?), clothing, food. The single major expense that is highly responsive to locale seems to be housing. The difference in value for a house in an area where there are virtually no jobs versus a vital metro area can be astounding -- perhaps $50,000 versus $500,000 for essentially the same house. Because of thinning population in the somewhat destitute areas, property taxes are also dramatically disparate -- perhaps $500 versus $10,000 annually for that same house. Given these conditions, I suspect 2 things: 1) that the CPI presumes that everyone can take their share of the cost improvements, but perhaps, in reality, some cannot even pay for the cost of living where there is a job to be had (and thus cannot take advantage of the strides in technology and other costs encompassed by CPI) in any location except one where there are actually no jobs, and 2) that there is no standard of living that a person in the U.S. could reduce himself to and compete with foreign wages due to the U.S. cost of living. These are not easy questions. For instance, we have no figures regarding the necessary commute (often without the benefit of public transportation) for a teacher or retail clerk or busboy to serve where they cannot afford to live.

I only raise these questions because of the astounding number of locally employed people I've encountered who report that can no longer or never could afford to live nearby. On the other hand, when I try to calculate what it would cost a person to live minimally in the cheapest dump in the U.S. I keep concluding that it would cost them more than Chinese or Indian wages. It has broad, worrisome implications. It is ultimately a foreign exchange issue that leads to so many other questions.

Does this affect the "record" manufacturing output we had for the year 2007?

Joe:

Good question. I haven't run all the intermediate years, but I wouldn't be surprised to see 2000 turn out to be the peak. I'll do the calculation.

I need a little help with the basic concepts.

Michael writes, "Statisticians look at how much is bought by American consumers, companies, and governments, and by foreigner purchasers of U.S. exports. Then they subtract out imports. What's left is U.S. output, also known as domestic value-added, or production."

But then he goes on to write that inflated import prices help overstate production.

How can this be? If production = consumption - imports, and the value of imports is overstated, then wouldn't it follow that production is understated?

Hi Bill

Here's the key. The increase in real production is (roughly speaking) equal to the increase in real consumption minus the increase in real imports.
The increase in real imports is equal to the increase in nominal imports adjusted by the change in the price of imports.

So if import prices drop faster, then the increase in real imports is bigger, and the increase in real production is smaller.

Is there a viable way to correct this going forward? Can the BEA get the data required? It seems in the past global trade was not large enough compared to our domestic output for this to be an issue. Now, it's not just the trade deficit that we need to consider but also the size of Exports and Imports that matters (or the size of errors in these). Is there a similar error that can happen on the export side? Is there an error in real vs. nominal exports as well?

All this article highlights is the long-running stupidity of having govt bureaucracies try to "measure" the entire economy and then "manage" outcomes. What we should be doing is getting rid of these dumb agencies, not bumping their budgets.

City says housing recovery is in sight.
But the City’s experts are betting that average prices will then stay broadly flat next year and start rising again from 2011, climbing by 2 per cent.
How many lies we live with? Do we know? USA, UK, and we pass these to others like the flue.
Where does this sum come from I wonder? I see all have problem to balance the books. Do we wait 2017?
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The report didn't identify any specific security breaches, but it said the State Department should have withheld at least $55 million in payments to the company because of the shortfalls.
The report didn't identify any specific security breaches, but it said the State Department should have withheld at least $55 million in payments to the company because of the shortfalls.
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I thank you
Firozali A Mulla