#496. The Truth about American Manufacturing

A recent report by John Manzella entitled “The Truth about American Manufacturing” caught our eye. We firmly believe that manufacturing is making a comeback in the United States, but we also understand that factors such as productivity, technology, and automation have a very definite effect on not only the number of workers needed, but on the value and quality of the products manufactured. Below is the first part of John’s report:

The Truth about American Manufacturing

When asked to describe the state of American manufacturing, many say it has been “hollowed out.” When asked why, they point to the decline in manufacturing jobs, note the few “Made in America” products on retail store shelves, and identify importing and offshoring as the culprits. Although many of these reasons appear persuasive, they’re not accurate.

U.S. manufacturing employment, no doubt, has declined from a high of 19.5 million workers in 1979 to approximately 12 million today. The primary reason, however, has everything to do with technology, innovation and automation, which have empowered fewer employees to produce much more in less time. In turn, “productivity in the manufacturing sector has been growing both absolutely and relative to other sectors of the U.S. economy,” say Theodore Moran and Lindsay Oldenski of the Peterson Institute for International Economics.“

Another factor impacting the decline in manufacturing jobs is this: depending on the specific sector, “30 to 55 percent of manufacturing jobs in advanced economies are in service-type functions,” McKinsey Global Institute reports. As manufacturers continue to focus on their core competencies and contract various functions to suppliers, many of these service-related jobs, like research and development, marketing, design, sales, accounting and payroll, and packaging, are shifted to local accounting, marketing, payroll, and other highly specialized service firms that offer greater value. In turn, government statistics would indicate a decline in manufacturing jobs and an increase in the service sector.

Surprising to many, manufacturing value-added output has not decreased. In fact, with the exception of recessionary periods, it has risen each year, jumping from $545 billion in 1979 to nearly $2.1 trillion in 2013, the Bureau of Economic Analysis reports. And what is occurring in the manufacturing sector already has occurred in the agricultural sector. According to the Bureau of Labor Statistics, in 1940, 9.5 million U.S. workers were employed on farms, but by 2013, this number had declined to approximately 2 million. Yet, U.S. agricultural output skyrocketed.

When walking down the aisles of many retail stores, few products carry the “Made in America” label. There’s a good reason. Today, an increasing number of American manufacturers produce high margin, higher technology products that incorporate significant levels of intellectual property, such as medical equipment, pharmaceuticals, aerospace equipment, and computer chips, and no longer focus on consumer goods to the extent they did in the past. In turn, many consumer products are imported.

John Manzella is an author, speaker, editor-in-chief of The Manzella Report, the premier source for global business and economic news and analysis, and president of Manzella Trade Communications, a strategic communications, publishing and public affairs firm that focuses on global business and today’s leading economic issues.

To read John’s full report, visit here.