An Inconvenient Truth

It is not hard to find someone who will say that "we don’t manufacture anything here anymore."

Just recently, I read an article about high-tech manufacturing going overseas and how it needs special protection. Both claims are nonsense. The truth is that the US manufacturing sector is strong; it is a vibrant and vital part of our economy. Maybe it's because I, personally, and ITR, generally, work with so many manufacturers, but I find such claims from the naysayers belittling to the hardworking men and women in manufacturing jobs.

The manufacturing misperception often involves a statement about manufacturing as a percentage of US Gross Domestic Product (GDP). Manufacturing is currently 11.0% of GDP, down from 17.3% 30 years ago. However, 10 years ago it was 11.7% of GDP. The 30-year decline in manufacturing's percentage of GDP is often cited as proof that manufacturing has "gone away." The needle has barely moved over the last 10 years.

Furthermore, and to keep all this in context, the percentage reflects a relative position within a growing economy. The whole pie is getting larger, so, naturally, the manufacturing side is too. Growth within the US economy is not a zero-sum game between manufacturing and services. Manufacturing and services can both grow as the whole pie grows, and that has obviously been the case over time. GDP (deflated) as of September 2019 stands at $19.113 trillion, compared to $9.239 trillion 30 years ago and $15.189 trillion 10 years ago. Viewed another way, the percentage approach merely reveals that services have grown faster than manufacturing, not that manufacturing has declined.

At present, total manufacturing in the US is experiencing business cycle decline off a June 2019 10-year high (12MMA basis). Even with the slight decline in the last quarter, total manufacturing is a very slim 1.5% below the February 2008 record high (12MMA history begins in the 1890s). Just to be clear, the production index measures real production output. Total manufacturing will slump for a bit, but the industry as a whole is far from its reported death bed.

High-tech manufacturing is faring better than total manufacturing, with the 12MMA posting record-high levels with each passing month (the 12MMA history stretches back to 1967). The quarterly year-over-year growth rate (3/12) is rising off a tentative August 2019 low, an early sign of an increased rate of rise in high-tech manufacturing in mid-2020.

Occasionally someone will lament that there are no jobs in manufacturing. There were 484,000 unfilled jobs in manufacturing in August, down slightly from June’s record high (the data stretches back almost 18 years). Clearly, there is a lot of opportunity in this segment of the economy.

Manufacturing wages are at $1,151.44/week. That is up from $912.05 10 years ago, and that increase exceeds the cost of living increase over the same 10-year period. Manufacturing wages have done more than keep current; they have grown faster than inflation.

Our mission is to combine a dependable world view with our in-depth knowledge of business trends and bring that to your company to enable you, a business leader, to make the best possible tactical and strategic decisions for all your stakeholders. We would be happy to help you determine where and how you fit into the economy and into the business cycle.

Alan Beaulieu
President