Applied Economics in US Manufacturing
This report provides an overview of the US manufacturing industry. There are three aspects of US manufacturing that are considered: (1) how the US industry compares to other countries, (2) the trends in the domestic industry, and (3) the industry trends compared to those in other countries. The US remains a major manufacturing nation; however, other countries are rising rapidly. US manufacturing was significantly impacted by the previous recession and has only recently returned to pre-recession levels of production and still remains below pre-recession employment levels. The tables and figures referenced below are found in the report.
Although US manufacturing performs well in many respects, there are opportunities for advancing competitiveness. This will require strategic placement of resources to ensure that US investments have the highest return possible.
Competitiveness – Manufacturing Growth: US compound real (i.e., controlling for inflation) annual growth between 1992 and 2017 (i.e., 25-year growth) was 2.5 %, which places the US below the 50th percentile. The compound annual growth for the US between 2012 and 2017 (i.e., 5-year growth) was 1.2 %. This puts the US just above the 25th percentile below Canada and Germany among others.
Competitiveness – Manufacturing Industry Size: US manufacturing value added, as measured in constant 2010 dollars, is the second largest behind that of China (See Figure 2.3). In current dollars, the US produced $1.9 trillion in manufacturing valued added while China produced $3.2 trillion. Among the ten largest manufacturing countries, the US is the 4th largest manufacturing value added per capita (see Figure 2.4). Out of all countries the most recent US rank is 19th, as illustrated in Figure 2.5. The US ranks 1st in 7 manufacturing industries out
Competitiveness – Productivity: Labor productivity for manufacturing increased 0.7 % from 2017 to 2018 and has had a slight upward trend, as seen in Figure 4.6. For US manufacturing, multifactor productivity declined 1.4 % from 2016 to 2017 and has had a downward trend in recent years, as seen in Figure 4.7. US productivity is relatively high compared to other countries. As illustrated in Figure 4.8, the US is ranked fourth in output per hour among 65 countries using data from the Conference Board. In recent years, productivity growth has been negative or has come to a plateau in many countries and the US seems to be following this pattern of slow growth. There are competing explanations for why productivity has slowed, such as an aging population, inequality, or it could be the result of the economic recovery. A number of the explanations equate to low levels of capital investment. It is also important to note that productivity is difficult to measure and even more difficult to compare across countries. Moreover, the evidence does not seem to support any particular explanation over another as to why productivity appears to have stalled.
Competitiveness – Economic Environment: There is no agreed upon measure for research, innovation, and other factors for doing business, but there are a number of common measures that are used. The ranking of the US in these measures is a mixed bag, ranking high is some and low in others. For instance, the US ranks 3rd in patent applications but ranks 16th in researchers per capita and 21st in journal article publications per capita. The IMD World Competitiveness Index, which measures competitiveness for conducting business, ranked the US 3rd and the World Economic Forum, which assesses the competitiveness in determining productivity, ranked the US 1st. Note that neither of these are specific to manufacturing, though. A third index specific to manufacturing, the Deloitte Global Manufacturing Index, ranks China 1st and the US 2nd. The Competitive Industrial Performance Index, which measures capacity to produce and export manufactured goods; technological deepening and upgrading; and world impact, ranked the Germany 1st and the US 3rd.
Domestic Specifics – Types of Goods Produced: The largest manufacturing subsector in the US is chemical manufacturing, followed by computer and electronic products and food, beverage, and tobacco products, as seen in Figure 2.13. Discrete technology products accounted for 36 % of US manufacturing.
Domestic Specifics – Economic Recovery: US Manufacturing declined significantly in 2008 and has only recently returned to its pre-recession peak level, which occurred in 2007. Manufacturing value added declined more than total US GDP, creating a persistent gap. The result is that first quarter GDP in 2019 is 20.0 % above its pre-recession peak level while manufacturing is at 2.7 % above its peak level. Between January 2006 and January 2010, manufacturing employment declined by 19.4 %. As of July 2019, employment is still 9.5 % below its 2006 level.
Domestic Specifics – Manufacturing Supply Chain Costs: High cost supply chain industries/activities, which might pose as opportunities for advancing competitiveness, include energy related industries, management, transportation, semiconductor manufacturing, and machinery manufacturing. Production occupations is the largest labor cost activity, followed by management, office and administrative support, transportation and material moving, and business and financial operations.
Domestic Specifics – Manufacturing Safety and Compensation: As seen in Figure 4.5, employee compensation, which includes benefits, has had a five-year compound annual growth of 0.7 %. In terms of safety, the number of fatal injuries decreased 26.2 % between 2016 and 2017 (see Table 4.4). Nonfatal injuries decreased along with the injury rate (see Table 4.5). However, the incident rate for nonfatal injuries in manufacturing remains higher than that for all private industry. As seen in Figure 4.2, fatalities, injuries, and the injury rate have had an overall downward trend since 2000.
Nonfarm proprietors’ income for manufacturing has had a five-year compound annual growth rate of -6.1 %. Corporate profits have had a five-year compound annual growth of -9.0 %.
For more information: NIST AMS 100-28