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Wednesday, September 9, 2009

More on U.S. Manufacturing

In response to my post on lost jobs in manufacturing, I was asked to provide manufacturing output as a percent of US GDP.

What we see is a manufacturing sector that has been on the decline, relative to the broader economy, going on 60+ years. This in itself this doesn't mean much. All it means is the manufacturing sector has not grown as fast as the broader economy. In theory (ignoring everything else for the time being), this is logical. At a certain point, we should not be consuming goods (durable and non-durable) at a level that grows as fast as the broader economy. 20 years from now, do we really need to consume twice as much as we currently do? (Unless it means those not fortunate enough finally have the necessities that most of us take for granted, then no... we don't. )

But, our past few generations HAVE consumed that much more than previous generations (in fact consumption has grown substantially faster than the broader economy reaching more than 70% of GDP). To put this in perspective, one recent study showed that the average number of cars owned in the United States is now 765 vehicles per 1000 people (including every man, woman, and child), or about 5x more than the global average. So... the consumption was there. The manufacturing just happened to be done outside of the United States.

The chart below shows just that. Net export of goods (ignores services) as a percent of GDP, went from a small positive figure until the 1970's (i.e. we manufactured for the world), to a large negative figure since (i.e. we consume for the world).

So the answer to the question of decreased jobs in the manufacturing sector was likely three-fold:

  • Productivity increased
  • The manufacturing sector grew slower than the broader economy
  • The U.S. outsourced a large portion of that sector to other counties

Here's some additional perspective. The manufacturing sector now adds less to our broader economy then... wait for it... the government itself.

And while I understand that outsourcing is not really an option with regards to the government, shouldn't we expect the same productivity gains and slower growth (than the broader economy) from the government sector as the manufacturing sector?

Source: BEA