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US Manufacturing: Um, I Don't Think That Statistic Means What You Think It Means

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FUN WITH MISLEADING NUMBERS
DailyFeed
There's a chart making the rounds right now that purports to prove the strength of the US manufacturing industry:



"We constantly hear about the 'decline of U.S. manufacturing' and how America 'doesn’t make anything anymore.' The reality is that the United States produces a lot of manufacturing output," writes economist Mark J. Perry. "In 2009, America produced more manufacturing output than the combined manufacturing sectors of Germany, Italy, France, Britain, Brazil, and South Korea. And one of the reasons that America has been the world’s leading manufacturing nation for more than 100 years is the continually increasing productivity of our manufacturing workers."

He's absolutely correct. Productivity in the manufacturing sector has increased. As Perry points out, between 1947 and 1980, "real manufacturing output per worker doubled from $35,000 to $70,000, and since 1980 output per worker has more than doubled to almost $150,000 in 2010, a new record high."

But let's put these numbers in context. That doubling of output per worker since 1980 corresponds with a near-halving of manufacturing employment.

From the Bureau of Labor Statistics:



That's manufacturing over there in the right-hand column -- 11,524,000 workers in 2010 versus 18,733,000 in 1980. What does this mean? Fewer people are doing more. Efficient, yes. However, are the "ongoing gains in the productivity and efficiency of American manufacturing workers" truly a "sign of a thriving and vital industry, not an industry in decline?" Is it cause to "celebrate the loss of millions of factory jobs due to dramatic increases in worker productivity" as Perry himself wrote back in July?

Take a look at this conversation I had with editor-in-chief Kevin Depew about it a few minutes ago:

ME: What do you make of this chart?

KEVIN: Well, the productivity and output per worker measurement is like saying, "Wow, look at how good everyone is at typing on keyboards." It's a non sequitur unless understood in the context of actual population and employment trends. The US does not have a "thriving vital and manufacturing industry." It's an industry in continued decline, and looking at output per worker without looking at the context of broader employment, population and percentage of GDP trends is irrelevant precisely because it leads to poor conclusions that themselves are irrelevant to anything.

ME: What about the efficiencies created for the companies?

KEVIN: The absolute number of manufacturing jobs since 1950 has been trending downward. Since 1950. 60 years of trending downward. Sure, it's efficient to increase output while employing fewer and fewer people. But, of course output has increased. Output in every industry has increased. Anyone with access to an electrical outlet or car batter is more productive today. In absolute terms manufacturing is now a much, much smaller part of the economy. Jobs in manufacturing and its contribution to GDP are dwarfed by leisure and hospitality, education and health services, professional and business services, and trade, transport and utilities. It's not even close. In fact, manufacturing's percentage of GDP is now less than half of what it was in 1950 when it made up nearly 30%. In 1961 manufacturing was the single largest employment and GDP-contributing sector of the economy -- and still was as recently as 1982.

ME: And then?

KEVIN: Government jobs surpassed manufacturing jobs for the first time. And there are twice as many by comparison today.

In Perry's July piece, he maintained that "Any time we can get more output with fewer workers, whether it's farming or manufacturing, it's a sure sign of economic progress and a rising standard of living."

The whole thing brings to mind a statement made by George W. Bush in 2008.

“The fact that they purchased the machine meant somebody had to make the machine. And when somebody makes a machine, it means there’s jobs at the machine-making place.”

Unfortunately, getting hired at a lot of today's "machine-making places" means first getting sentenced to federal prison.
POSITION:  No positions in stocks mentioned.

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