Exploring the Importance of Manufacturing to the Economy

 A while back, we posted an article on how manufacturing in the US has changed in the last 20 years.  Two major points were raised: technology replacing labor and the offshoring of production.

Efforts are underway to revitalize manufacturing in the US.  Let’s look at what the numbers demonstrate.

The Bureau of Economic Analysis, the federal government agency tasked with tracking economic data, reports a breakout of GDP by industry, among other measures.

Source: U.S. Bureau of Economic Analysis, Interactive Access to Industry Economic Accounts Data: GDP by Industry [https://apps.bea.gov/iTable/iTable.cfm?ReqID=51&step=1] (accessed June 3, 2019) (Note rounding causes the total for manufacturing to trail the sum of durable and non-durable goods in some years).

While the overall GDP rose a cumulative 35.1% between 2008 and 2018, the manufacturing industry only increased by 13.8%.  Durable goods production climbed 17.8% while non-durable goods grew at a lower rate of 9.9%.  Manufacturing now holds a declining piece of the GDP pie, falling from a 20.4% slice in 2008 to 17.1% of a much stronger GDP in 2018.

The Bureau of Labor Statistics (“BLS”) states average weekly earnings of all private workers rose a total 24.5% between 2009 and 2018.    For workers in durable goods manufacturing, the growth rate between 2009 and 2018 is a slightly lower at 22.2%.  For the nondurable sector, it is 24.0%.

The Bureau reports these all private sector workers earned an annualized $49,103 in the 12 months ended April 2019.  Durable goods workers earned a much higher annualized $61,355 while nondurable workers earned somewhat higher than the private sector at $51,971.

The Federal Reserve Bank of St. Louis shows large changes in manufacturing employment in the last several decades.  The height of manufacturing employment was reached in June 1979 with 19.553 million.  This contrasts to 12.838 million reported in April 2019, a decline of 34.3%.  The National Association of Manufacturers projects an additional 4.6 million jobs will be added in the next ten years.

Production at factories dropped at a 1.1% annualized rate in Q1 2019.  This is the first quarterly drop since Q3 2017.  It follows a 1.7% annualized increase in Q4 2018.  Motor vehicle and parts production declined 2.5% in March after increasing a similar 2.3% in February. An inventory surplus in the automobile sector lowered production requirements.  (Note such auto production fluctuations are typical).

As cited in Bloomberg’s website, the U.S. Manufacturing Purchasing Managers’ Index was 50.5 in May. A reading above 50 indicates expansion in the sector, while below points to a contraction.

Note that this decline is not unusual.  Investing.com reports these significant changes since 2010. The forecast for June calls for a rise to 52.5.


Source: Investing.com, U.S. Manufacturing Purchasing Managers Index,

[https://www.investing.com/economic-calendar/manufacturing-pmi-829] (accessed June 3, 2019)

The strong dollar and declining economies globally are softening international demand for US-manufactured goods.

The upshot is manufacturing remains important to the US economy.  Manufacturing employees, particularly in the nondurable goods sector, are better off than those in the private sector.

The question remains: Will changes in technology and the rise in international manufacturing result in a continuing decline to domestic operations?

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