As I monitor the data on U.S. manufacturing, I feel it is important to step back and take stock of where things stand. As the economy emerged from the recession, manufacturing was growing and leading the economy out of the recession but more recently growth in manufacturing has slowed. Historically, manufacturing has been key driver of economic growth after a recession and thus it is important to see it return to a long-term sustainable growth trajectory. Every month, I see a speck of data that indicates maybe manufacturing is reviving and back on the path it was on from mid- 2009 through 2011, but then I see another piece of data that’s contrary to that narrative.
I suspect this slowdown reflects global economic weakness and government budget cuts that have weighed heavily on U.S. manufacturers for months. For instance, the Institute for Supply Management’s Composite Index has slowed since early 2011. Employment in manufacturing peaked in early 2013 and has since leveled off.
In addition, industrial production has been on a bumpy path. The chart below displays the month to month change in industrial production since the bottom of the recession in 2009. Early this year, industrial production shot up but then has fallen off although the last few months suggest that maybe it is beginning to rebound.
Labor productivity within manufacturing appears to growing but is has slowed as well. For instance, the quarterly change in productivity stalled during the summer last year but appears to have picked up since then. For the last few quarters, labor productivity has grown by about 1 percent.
I think as things settle, manufacturing may return to a sustained and stable path of growth. However, there remains a lot of uncertainty regarding global growth, public policy, and business expectations. I continue to see policy recommendations such as these from the McKinsey Global Institute but wonder if they are the elixir we need to return to strong and sustained economic growth. What has been your experience over the last few months?