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Is U.S. Manufacturing Really in Decline?

Daniel Gross

Daniel Gross is executive editor of strategy+business.

 

Did you hear that U.S. manufacturing just had another big month? That output has risen about 20 percent in the past six years? That industrial capacity is actually expanding?

Probably not. At most times, and especially in election season, the talk surrounding U.S. manufacturing is one of relentless decline: a loss of jobs, the shutting down of factories, increased competition from foreign countries, a global war in which the U.S. seems to be on the losing end.

And of course, it’s true. At some level, manufacturing has declined dramatically — as a direct employer of American workers. According to the Bureau of Labor Statistics, 12.3 million Americans had payroll jobs in manufacturing in June. That’s down about 30,000 from June 2015, off nearly 1.9 million from June 2006, and down 4.9 million from 1996. In the past 20 years, in other words, America has shed 28 percent of its manufacturing jobs. In good times and bad, in recession and expansion, the manufacturing sector employs fewer people. It’s impossible to dismiss or talk around this trend.

But the decline of employment isn’t the whole story. Not by a long shot. In fact, in many significant ways, U.S. manufacturing is thriving. The point of manufacturing is to make stuff that people and companies will buy and use, not to employ people to make stuff. And by the former measure, U.S. manufacturing is actually doing quite well. (Note: Rex Nutting at Marketwatch made this point back in March.)

Take a look at this long-term chart of industrial production, courtesy of the U.S. Federal Reserve. Over the past 100 years, the index, which measures the value of the output of the manufacturing, mining, and utilities industries, has risen steadily. But the rise has generally continued in the last several decades — decades in which the narrative was that manufacturing has been in apparent decline.

What accounts for this disconnect between the rising dollar value of manufactured goods and falling employment? A few things. First, the production of less-expensive goods, like T-shirts, toys, and the like, has long since gone offshore. As a result, manufacturing in the U.S. is disproportionately a high-end activity: heavy machinery, tools, cars. I visited a General Electric plant in South Carolina a few years ago that made gas turbines for power plants — at US$90 million apiece. Boeing makes large airplanes in this country, which can cost about $200 million each. America may not make as many objects as it did 30 years ago, but the average value of an object made in the U.S. has risen sharply.

Second, there’s productivity. Manufacturing, from the outset, has been a pioneer in labor-saving technology. A century ago, Frederick Winslow Taylor walked around factories with stopwatches to time workers and suggest improvements. Henry Ford spend untold hours devising a hyper-efficient assembly line. Then came total quality management, Six Sigma, lean manufacturing, and all the other trends and practices. The overriding imperative driving these efforts has always been to figure out how to produce more (and faster) with fewer resources — raw materials, energy, effort, and, yes, labor.

In an often-overlooked phenomenon, quarter after quarter, year after year, companies have invested in and applied technology to the manufacturing process. Recent advances in computer technology have transformed efficiency efforts from an analog undertaking to a digital one.

The result is that factories today can actually be slightly eerie places, especially to someone accustomed to working in a densely populated newsroom or trading floor. Over the past several years, I’ve visited a range of factories: a steel fabrication plant in New York, a window manufacturer in Florida, car factories in Ohio, a frozen-French fry plant in North Dakota, a jet-engine plant in North Carolina, a producer of plastic coffee pods in Virginia, a jar manufacturer in Indiana, and a fishing-line producer in South Carolina. The common denominator in each: There just aren’t that many people in them. There are lots of whirring gizmos, belts that move goods through the stages of production, and machines that package and stack the finished products on pallets. But the people on the floor are mostly involved in tending to raw materials, quality control, maintenance, and oversight.

The common denominator in each of these diverse plants I visited: There just aren’t that many people in them.

There’s a third point that is overlooked when we focus only on direct factory employment as a measure of manufacturing’s strength. Manufacturing has, to a large degree, unintegrated. That is to say, the activity you see on the factory floor is the culmination of all sorts of other activity that happened elsewhere. A rule of thumb in the gas-turbine or jet-engine business, for example, holds that for every job in the factory, there are eight in the supply chain.

And those aren’t just jobs at the manufactures of the components that are assembled in the factory. In fact, there are a lot of service jobs involved with manufacturing, many of which are done by people who don’t work directly at manufacturers. All the materials have to be moved — on trucks, trains, and planes. Marketing and sales professionals help goods find buyers. Factories wouldn’t be able to run without security, maintenance, landscaping, and food service.

Put another way, manufacturing may not simply be more robust than is commonly understood; it may support more employment than many people think.

Of course, it’s natural to discuss direct employment when determining the state of manufacturing in a given country. There’s an important human story behind every job that has been lost in manufacturing over the years. But when we’re trying to grasp the implications of complex economic phenomena and technological change, one data point doesn’t always tell the entire story.

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Is U.S. Manufacturing Really in Decline?