Post on 31-Jan-2018
Copyright © 2010 Rockwell Automation, Inc. All rights reserved.
Manufacturing Perspectives 2011
Is the U.S. Losing Its Manufacturing Base?
William StraussSenior Economistand Economic AdvisorFederal Reserve Bank of Chicago
Manufacturing PerspectivesAutomation Fair 2011November 15, 2011
The Setup
Manufacturing output peaked in December 2007and fell 20.5% over the following 18 months
50
60
70
80
90
100
110
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Industrial production ‐manufacturingIndex 2007 = 100
Manufacturing capacity utilization collapsedto the lowest rate in 70 years
646668707274767880828486
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Capacity utilization ‐manufacturingpercent
Job declines in the manufacturing sector were significant,with over 2 million jobs lost over that same period
‐20
‐15
‐10
‐5
0
5
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Manufacturing employmentpercent
Quarterly change (saar)
Percent change from a year earlier
Is the U.S. Losing ItsManufacturing Base?
Manufacturing employment as a share of national employment has been declining for over 50 years
0
5
10
15
20
25
30
35
40
1940 '50 '60 '70 '80 '90 '00 '10
Manufacturing employment asa share of total nonfarm employmentpercent
The number of jobs in manufacturing has beenrelatively stable over this period,
edging lower on average by -0.3% per year since 1947
02468101214161820
1940 '50 '60 '70 '80 '90 '00 '10
Manufacturing employmentmillions
Not to make a mountain out of a molehill,but manufacturing employment was increasing up until 1979
and has been moving lower over the past 30 years
10
12
14
16
18
20
1940 '50 '60 '70 '80 '90 '00 '10
Manufacturing employmentmillions
0.8%
‐1.6%
However, service sector employment has grown more than fourfold over this period,
averaging growth of 2.3% per year since 1947
0
20
40
60
80
100
120
1940 '50 '60 '70 '80 '90 '00 '10
Employmentmillions
service
manufacturing
While manufacturing employment growth has been edging lower over the past 63 years,
manufacturing output increased by 3.1% per year
0
20
40
60
80
100
120
1940 '50 '60 '70 '80 '90 '00 '10
Manufacturing outputIndex 2007=100
This translated into an almost 600 percent increase in manufacturing output over this time period
0
20
40
60
80
100
120
0
20
40
60
80
100
120
1940 '50 '60 '70 '80 '90 '00 '10
ManufacturingIndex 2007=100
output ‐ left scale
employment ‐ right scale
millions
The increase in output can be attributed to strong productivity growth experienced by the manufacturing sector
0
100
200
300
400
500
600
1950 '60 '70 '80 '90 '00 '10
Manufacturing productivityIndex 1950=100
What took 1,000 workers to produce in 1950takes 177 workers today
0100200300400500600700800900
1,000
1950 1960 1970 1980 1990 2000 2010
Manufacturing sector:Number of workers needed to do the work of 1,000 workers in 1950
Number of workers
1,000
813
627
485
362
243177
Manufacturing productivity growing faster over the past 40 years
2.2
2.7
1.7 1.6
2.1
2.8
2.1
2.6 2.63.0
4.13.7
0
1
2
3
4
5
1950s 1960s 1970s 1980s 1990s 2000‐2010
ProductivityAverage annual percent change
Nonfarm business Manufacturing
The divergence in productivity appearsto have occurred around the mid-1970s
0
50
100
150
200
250
300
350
1950 '60 '70 '80 '90 '00 '10
ProductivityIndex 1975=100
manufacturing
nonfarm business
This divergence is especially apparent indurable manufacturing
0
50
100
150
200
250
300
350
400
1950 '60 '70 '80 '90 '00 '10
ProductivityIndex 1975=100
durable manufacturing
nondurable manufacturing
Strong productivity growth had allowed the manufacturing sector to grow faster than the overall economy
0
100
200
300
400
500
600
700
800
900
1947 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02 '07
OutputIndex 1947=100
industrial production ‐ manufacturing
real GDP
However, lower relative prices in the manufacturing sectorhas lead to manufacturing comprising
a smaller share of GDP over time
10
15
20
25
30
1947 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02 '07
Manufacturing share of GDPpercent
How profitableis manufacturing?
While more cyclical, profits in manufacturing have out-performed returns in nonfinancial corporate businesses
0
5
10
15
20
25
30
1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
Profits ‐ as a percentof value addedpercent
manufacturing
nonfinancial corporate business
Lessons from the farm sector
We are producing more in our farm sectorthan at any time in our history
0
20
40
60
80
100
120
1947 '57 '67 '77 '87 '97 '07
Real gross value added: farm businessBillions of chained 2005 dollars
And we have accomplished this remarkable featwith less than 2.0% of our employment devoted to farming
0
10
20
30
40
50
60
70
80
90
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Share of total employmentpercent
services
agriculture
manufacturing
Trade with China
China has risen to number one in terms of U.S. imports, representing 19.1% of all imports in 2010
0
500
1,000
1,500
2,000
2,500
1975 '80 '85 '90 '95 '00 '05 '10
Imports (customs value)billions of dollars
China
Canada
Mexico
Japan
GermanyUK
Korea
rest ofimports
While China has risen to be our third largest export country, it represents only 7.2% of U.S. exports
0
200
400
600
800
1,000
1,200
1,400
1975 '80 '85 '90 '95 '00 '05 '10
Exports (f.a.s.)billions of dollars
China
Canada
MexicoJapan
GermanyUK
Korea
rest ofexports
This difference has led to China havingthe largest trade deficit with the U.S.
‐900‐800‐700‐600‐500‐400‐300‐200‐100
0100
1975 '80 '85 '90 '95 '00 '05 '10
Trade balance (customs value)billions of dollars
China
Canada
MexicoJapan
Germany
UKKorea
rest oftradedeficit
China has certainly increasedthe amount of goods flowing into the U.S.
0
500
1,000
1,500
2,000
2,500
1975 '80 '85 '90 '95 '00 '05 '10
Imports (customs value)Index 1990=100
China
Canada
Mexico
JapanGermany UKKorea
rest of imports
They have also represented the largest gain for exports from the U.S.
0
500
1,000
1,500
2,000
1975 '80 '85 '90 '95 '00 '05 '10
Exports (f.a.s.)Index 1990=100
China
Canada
Mexico
JapanGermanyUK
Korea
rest of imports
While China has increased its share of imports to the U.S., the Pacific Rim as a whole has hada declining share since the mid-90s
0
5
10
15
20
25
30
35
40
45
1974 '78 '82 '86 '90 '94 '98 '02 '06 '10
Share of U.S. importspercent
Pacific Rim
China
Pacific Rim excluding China
The Current Expansion
Beginning in July 2009, manufacturing output in theUnited States has been increasing at a 5.8% annualized rate
and has recovered 52.8% of its drop in output
50
60
70
80
90
100
110
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Industrial production ‐manufacturingIndex 2007 = 100
50
60
70
80
90
100
110
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Industrial production ‐manufacturingIndex 2007 = 100
Manufacturing capacity utilization rebounded
646668707274767880828486
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Capacity utilization ‐manufacturingpercent
646668707274767880828486
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Capacity utilization ‐manufacturingpercent
Summary
The trends that have dominated manufacturing for the past70 years are suggestive of the future for U.S. manufacturing: ever increasing output with employment representing asmaller share of total employment
Manufacturing employment has shown little change over thepast 70 years – with a steady decline over the past 30 years
Manufacturing output is in the process of recovering its lossesThe success of manufacturing has been driven by productivity
The most recent decline in manufacturing was cyclical,not structural
Profits in manufacturing have outperformed profits for therest of the nation
Chicago Fed Letter - June 2003www.chicagofed.org
Copyright © 2009 Rockwell Automation, Inc. All rights reserved.
Manufacturing Perspectives 2011