Manufacturing in the United States

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The US is manufacturing more than ever, but sector employment is stagnant after a long decline. Manufacturing GDP (nominal and real) and Manufacturing Employment.png
The US is manufacturing more than ever, but sector employment is stagnant after a long decline.

Manufacturing in the United States is a vital sector. [1] The United States is the world's second largest manufacturer (after China) with a record high real output in Q1 2018 of $2.00 trillion (i.e., adjusted for inflation in 2009 Dollars) well above the 2007 peak before the Great Recession of $1.95 trillion. [2] The U.S. manufacturing industry employed 12.35 million people in December 2016 and 12.56 million in December 2017, an increase of 207,000 or 1.7%. [3] Though still a large part of the US economy, in Q1 2018 manufacturing contributed less to GDP than the 'Finance, insurance, real estate, rental, and leasing' sector, the 'Government' sector, or 'Professional and business services' sector. [3]

Economic sector conceptual grouping of economic activities

One classical breakdown of economic activity distinguishes three sectors:

United States Federal republic in North America

The United States of America (USA), commonly known as the United States or America, is a country comprising 50 states, a federal district, five major self-governing territories, and various possessions. At 3.8 million square miles, the United States is the world's third or fourth largest country by total area and is slightly smaller than the entire continent of Europe, which is 3.9 million square miles. With a population of over 327 million people, the U.S. is the third most populous country. The capital is Washington, D.C., and the most populous city is New York City. Most of the country is located contiguously in North America between Canada and Mexico.

China Country in East Asia

China, officially the People's Republic of China (PRC), is a country in East Asia and the world's most populous country, with a population of around 1.404 billion in 2017. Covering approximately 9,600,000 square kilometers (3,700,000 sq mi), it is the third or fourth largest country by total area. Governed by the Communist Party of China, the state exercises jurisdiction over 22 provinces, five autonomous regions, four direct-controlled municipalities, and the special administrative regions of Hong Kong and Macau.

Contents

Though manufacturing output robustly recovered from the Great Recession to reach an all time high in 2018, manufacturing employment has been declining since the 1990s. This 'jobless recovery' made job creation or preservation in the manufacturing sector an important topic in the 2016 United States presidential election. [4]

Great Recession Early 21st-century global economic decline

The Great Recession was a period of general economic decline (recession) observed in world markets during the late 2000s and early 2010s. The scale and timing of the recession varied from country to country. The International Monetary Fund (IMF) has concluded that it was the most severe economic and financial meltdown since the Great Depression and it is often regarded as the second worst downturn of all time.

2016 United States presidential election 58th election of President of the United States

The 2016 United States presidential election was the 58th quadrennial American presidential election, held on Tuesday, November 8, 2016. The Republican ticket of businessman Donald Trump and Indiana Governor Mike Pence defeated the Democratic ticket of former Secretary of State Hillary Clinton and U.S. Senator from Virginia Tim Kaine, despite losing the popular vote. Trump took office as the 45th president, and Pence as the 48th vice president, on January 20, 2017.

Employment

Manufacturing jobs helped build out the U.S. middle class after World War II, as the U.S. established pro-labor policies and faced limited global competition. Between 1980 and 1985, and then again 2001 to 2009, there were precipitous declines in US manufacturing jobs; it is estimated that 1/3 of US manufacturing jobs vanished in the eight years 2001 to 2009, and few have returned. Some argue that the 2001-2009 period was worse for US manufacturing than the Great Depression. [5]

There are several possible explanations for the decline. Bill Lazonick argues that legalization of company's buying their own shares of stock in 1982 has led to sustained stock market bubbles that distorted investment away from physical plant. [6] Others point to automation or developments outside the United States, such as the rise of China, globalized free trade, and supply chain innovation. These have arguably resulted in the off-shoring of thousands of U.S. manufacturing facilities and millions of manufacturing jobs to lower-wage countries. Meanwhile, technological innovation has increased productivity significantly, meaning that manufacturing output in the United States has increased by 80% since the 1980s, despite large job losses in the manufacturing sector during that same period. [7] [8]

The Bureau of Labor Statistics (BLS) forecast in October 2017 that manufacturing employment would fall from 12.3 million in 2016 to 11.6 million in 2026, a decline of 736,000. As a share of employment, manufacturing would fall from 7.9% in 2016 to 6.9% in 2026, continuing a long-term trend. [9]

Bureau of Labor Statistics US government agency

The Bureau of Labor Statistics (BLS) is a unit of the United States Department of Labor. It is the principal fact-finding agency for the U.S. government in the broad field of labor economics and statistics and serves as a principal agency of the U.S. Federal Statistical System. The BLS is a governmental statistical agency that collects, processes, analyzes, and disseminates essential statistical data to the American public, the U.S. Congress, other Federal agencies, State and local governments, business, and labor representatives. The BLS also serves as a statistical resource to the United States Department of Labor, and conducts research into how much families need to earn to be able to enjoy a decent standard of living.

U.S. manufacturing employment U.S. manufacturing employment.png
U.S. manufacturing employment
U.S. manufacturing industry's share of nominal GDP US manufacturing industry's share of nominal GDP.png
U.S. manufacturing industry's share of nominal GDP

The U.S. manufacturing industry employed 12.4 million people in March 2017, [3] generating output (nominal GDP) of $2.2 trillion in Q3 2016, with real GDP of $1.9 trillion in 2009 dollars. [2] The share of persons employed in manufacturing relative to total employment has steadily declined since the 1960s. Employment growth in industries such as construction, finance, insurance and real estate, and services industries played a significant role in reducing manufacturing’s overall share of U.S. employment. In 1990, services surpassed manufacturing as the largest contributor to overall private industry production, and then the finance, insurance and real estate sector surpassed manufacturing in 1991.

Construction Process of the building or assembling of a building or infrastructure

Construction is the process of constructing a building or infrastructure. Construction differs from manufacturing in that manufacturing typically involves mass production of similar items without a designated purchaser, while construction typically takes place on location for a known client. Construction as an industry comprises six to nine percent of the gross domestic product of developed countries. Construction starts with planning, design, and financing; it continues until the project is built and ready for use.

Financial services economic service provided by the finance industry

Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokerages, investment funds, individual managers and some government-sponsored enterprises. Financial services companies are present in all economically developed geographic locations and tend to cluster in local, national, regional and international financial centers such as London, New York City, and Tokyo.

Insurance equitable transfer of the risk of a loss, from one entity to another in exchange for payment

Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

Since the entry of China into the World Trade Organization in December 2001, the decline in manufacturing jobs has accelerated. [7] The U.S. goods trade deficit (imports greater than exports) with China was approximately $350 billion in 2016. [10] However it is possible that the import of goods from China is a result rather than a cause. The US stock market also ended a sustained fourteen year bubble in 2001, and the ensuing job loss pushed a significant portion of US population below the poverty line.

The Economist reported in January 2017 that manufacturing historically created good paying jobs for workers without a college education, particularly for men. The jobs paid well enough so that women did not have to work when they had young children. Unions were strong and owners did not want to risk strikes in their factories due to large capital investments and significant on the job training. Such jobs are much less available in the post-2001 era in the U.S. though they remain available in Germany, Switzerland and Japan, leading to calls to bring those jobs back from overseas, establish protectionism, and reduce immigration. Making it illegal for companies to purchase shares of their own stock has not yet gained traction as a remedy for the diversion of operating profits away from reinvestment in equipment and people. Manufacturing continues to evolve, due to factors such as information technology, supply chain innovations such as containerization, companies un-bundling tasks that used to be in one location or business, reduced barriers to trade, and competition from low-cost developing countries such as China and Mexico. Competition from high wage nations such as Germany is also increasing. [4]

History

Panel showing four manufacturing charts, illustrating trends in employment, output, and productivity US Manufacturing charts v1.png
Panel showing four manufacturing charts, illustrating trends in employment, output, and productivity

Between 1980 and 1985, US manufacturing was hard hit by a twin dynamic: first, Japanese productivity rose at a rapid rate, so that Japanese products fell in price by 12%. Second, Fed Chair Paul Volcker raised US interest rates such that the US dollar appreciated. This was the opposite policy from that which a rise in Japanese productivity would have dicated, and the US policy action made Japanese products 30% cheaper than American until 1986. The US machine tool sector never recovered from this body blow. [11] Between 1983 and 2005, U.S. exports grew by 340 percent, with exports of manufactured goods increasing by 407 percent over the same period. In 1983, the primary export commodities were transportation equipment, computer and electronic products, agricultural products, machinery (except electrical), chemicals, and food and kindred products. Together these commodities totaled 69 percent of total U.S. exports. In 2005, the primary export commodities were largely the same: computer and electronic products, transportation equipment, chemicals, machinery (except electrical), miscellaneous manufactured commodities, and agricultural products. Together these commodities accounted for 69 percent of total U.S. merchandise exports.

Between 1983 and 2005, exports of computer and electronic products grew by 493 percent, overtaking transportation as the leading export commodity (which grew by 410 percent). Though agricultural products exports grew by 26 percent during this period, its share of overall merchandise exports fell from 12 percent in 1983 to 4 percent in 2005.

In 1983, the top trading partners for U.S. exports were Canada (21 percent of total merchandise exports), Japan (11 percent), United Kingdom (5 percent), Mexico (4 percent), Germany (4 percent), the Netherlands (4 percent), Saudi Arabia (3 percent), France (3 percent), Korea (3 percent), and Belgium and Luxembourg (2 percent).

In 2005, the top markets for U.S. exports were Canada (24 percent), Mexico (13 percent), Japan (6 percent), China (5 percent), United Kingdom (4 percent), Germany (4 percent), South Korea (3 percent), the Netherlands (3 percent), France (2 percent), and Taiwan (2 percent). Between 1983 and 2005, exports to Mexico increased by 1,228 percent, allowing it to replace Japan as the second-largest market for U.S. exports.

In the first quarter of 2010, overall U.S. merchandise exports increased by 20 percent compared to the first quarter of 2009, with manufactured goods exports increasing by 20 percent. As in 2009, the highest export commodities were transportation equipment, computer and electronic products, chemicals, machinery (except electrical), agricultural products, and miscellaneous manufactured commodities.

In the first quarter of 2010, the primary markets for U.S. merchandise exports were Canada, Mexico, China, Japan, the United Kingdom, Germany, South Korea, Brazil, the Netherlands, and Singapore. With the exception of the Netherlands, exports to all of these countries increased in the first quarter of 2010, compared to the same quarter in 2009. Notably, exports to Canada increased by 22 percent, Mexico by 28 percent, and China by 47 percent over this period. Exports to the two NAFTA partners accounted for nearly one-third (32 percent) of U.S. merchandise trade in the first quarter of 2010.

The panel chart in this section includes four diagrams describing manufacturing labor, output, and productivity historical trends through 2016:

Forecast

The Bureau of Labor Statistics projected in October 2017 that:

Trade policy

U.S. manufacturing employment has declined steadily as a share of total employment, from around 28% in 1960 to 8% in March 2017. Manufacturing employment has fallen from 17.2 million persons in December 2000 to 12.4 million in March 2017, a decline of about 5.7 million or about one-third. [3] An estimated 1-2 million of the job losses in manufacturing 1999–2011 were due to competition with China (the China shock), which entered the World Trade Organization in December 2001. [7] The Economic Policy Institute estimated that the trade deficit with China cost about 2.7 million jobs between 2001 and 2011, including manufacturing and other industries. [18]

While U.S. manufacturing employment is down, output was near a record level in 2017 in real GDP terms, indicating productivity (output per worker) has also improved significantly. [19] This is likely due to automation, global supply chains, process improvements, and other technology changes. [7]

Economist Paul Krugman argued in December 2016 that "America’s shift away from manufacturing doesn’t have much to do with trade, and even less to do with trade policy." He also cited the work of other economists indicating that the declines in manufacturing employment from 1999-2011 due to trade policy generally and trade with China specifically were "less than a fifth of the absolute loss of manufacturing jobs over the period" but that the effects were significant for regions directly impacted by those losses. [20]

Modern overview

The United States is the world's second largest manufacturer (after China) with a record high real output in Q1 2018 of $2.00 trillion (i.e., adjusted for inflation in 2009 Dollars) well above the 2007 peak before the Great Recession of $1.95 trillion. [2] The U.S. manufacturing industry employed 12.35 million people in December 2016 and 12.56 million in December 2017, an increase of 207,000 or 1.7%. [3]

Historically, manufacturing has provided relatively well-paid blue-collar jobs, although this has been affected by globalization automation.

Manufacturing continues to evolve, due to factors such as information technology, supply chain innovations such as containerization, companies un-bundling tasks that used to be in one location or business, reduced barriers to trade, and competition from low-cost developing countries such as China and Mexico. [4]

Manufacturing is conducted among globally distributed supply chains, with various stages of production conducted in different countries. [21] For example, automotive parts may be manufactured in the U.S., shipped to Mexico for assembly, then sent back to the U.S. In some cases, the components of the final product cross the border multiple times. An estimated 40% of the value of U.S. imports from Mexico is from content produced in the U.S.; this figure is 25% for Canada but only 4% for China. This "production sharing" is an indication of the integrated nature of the supply chains between the U.S., Mexico and Canada in the NAFTA region. [22]

Trade balance

During 2016, the U.S. exported $1,051 billion in manufactured goods and imported $1,920 billion, a manufacturing goods deficit of $868 billion. The largest exports were transportation equipment ($252B), Chemicals ($174B), Computers and Electronic Products ($116B) and "Machinery-Except Electrical" ($109B). [23]

Industries

As of 2019, durable and nondurable goods manufacturing account for $3.1t and $3t of gross output of GDP, respectively. [24]

The largest manufacturing industries in the United States by revenue include petroleum, steel, automobiles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, and mining. A large portion of U.S. industrial output, the United States leads the world in airplane manufacturing. American companies such as Boeing, Cessna (see: Textron), Lockheed Martin (see: Skunk Works), and General Dynamics produce a vast majority of the world's civilian and military aircraft in factories stretching across the United States.

International comparison

The Congressional Research Service reported in January 2017 that:

History

In the early colonial years, England sought to restrict manufacturing in America. [26] :16 The first paper mill arose in 1690. [27] :1 By the late 1700s, textile manufacturing developed, driven by Samuel Slater. [28]

See also

Further reading

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