The Demise of America’s Manufacturing Sector Has Been Greatly Exaggerated

Excellent post from Professor Perry. The U.S. still has a lot of strengths and still holds a lot of chips. There is little doubt that the world has become a much more competitive place but the foundations of American prosperity are still strong and I expect will continue to be so for sometime to come. If my previous posts have not made my position clear I do believe that China represents a military and political threat to the United States but I am unconvinced by the so-called China miracle. I believe that China is a castle built upon a foundation of sand. The risk of a Chinese economic/political collapse are great and well under-estimated by too many, particularly those in positions of corporate power, who should know better. The moral of this story I guess is, the U.S. is still an excellent place to invest whether in equities or business assets.

The Demise of America’s Manufacturing Sector Has Been Greatly Exaggerated

By Mark J. Perry

January 20, 2011, 6:53 am

We hear all the time about the “decline of U.S. manufacturing” (84,000 Google hits) and “the death of American manufacturing” (15,400 Google hits). Similarly, there are frequent claims that “nothing is made in America anymore,” because all of the manufacturing jobs and production have been outsourced to places like China, Mexico, and Korea. Such claims about U.S. manufacturing have been circulating so persistently and for so long, that most people now blindly accept these myths, even though the empirical evidence provides a completely different story—a thriving and growing U.S. manufacturing sector.

While it is true that the United States has lost more than 7 million manufacturing jobs since the late 1970s, that’s happened at the same time that U.S. manufacturing output has continued to expand and grow to new record levels almost every year. And in comparison to other countries, the United States remains by far the world’s largest manufacturer.

The chart below of the world’s top eight countries for manufacturing output, using international data on global output from the United Nations, helps to tell the ongoing success story of America’s manufacturing sector.

Note the following:

1. America’s manufacturing output, measured in constant 2005 dollars, has continued to increase in almost every year since 1970, except recently for recession-related decreases in 2001 and 2008-2009. In every year since 2004, manufacturing output in the United States has exceeded $2 trillion, and that’s twice the output produced in America’s factories back in the early 1970s. If the U.S. manufacturing sector were a separate country, its enormous size would rank today as the sixth-largest economy in the world, just behind France, and ahead of the U.K., Italy, and Brazil. And while manufacturing growth has been relatively flat in recent years for Japan and the European countries (Germany, U.K., France, and Italy), America’s manufacturing continues to grow at its long-term trend of 2 percent per year, on average.

2. Despite recent gains in China’s manufacturing output—it surpassed Germany in 2001 and Japan in 2007 to become the world’s second-largest manufacturer—U.S. manufacturing output in 2009 was almost 46 percent higher than China’s ($2.15 trillion vs. $1.48 trillion). And even with recent gains in manufacturing output in places like China, Korea, and Brazil, the United States still produced more than 20 percent of global manufacturing output in 2009, which is just slightly less than America’s 21 percent share in 1990, and not too much lower than America’s 25 percent share of world factory output in the early 1970s.

3. In 2009, the United States produced manufacturing output equivalent to the output of Japan (#3), Germany (#4), U.K. (#5), and Italy (#6) combined, and output equivalent to the next 11 countries ranked from #7 to #17combined: Korea, France, Canada, Mexico, India, Russia, Brazil, Spain, Australia, Turkey, and Indonesia.

The next chart shows the really amazing part of America’s manufacturing success story—the incredible, increasing productivity of America’s manufacturing workers. The average American factory worker is responsible today for more than $180,000 of annual manufacturing output, which is double the $90,000 output per worker in 1993 and triple the $60,000 annual amount in 1972. Those increases in worker productivity are a direct result of the ongoing capital investments in productivity-enhancing technology, computer equipment, robotics, and automation.

Bottom Line: The decline, demise, and death of America’s manufacturing sector has been greatly exaggerated. America still makes a ton of stuff, and we make more of it now than ever before in history, but we’re able to do it with a fraction of the workers that would have been required in the past. We’re still the world’s leading manufacturing economy by far, thanks to the world-class productivity of American manufacturing workers, the most productive in the world. Instead of bashing China, Korea, and Mexico for competing against our manufacturing sector and exaggerating the decline of our manufacturing sector, Americans should take more pride and celebrate our status as the world’s leading manufacturer.

The Demise of America’s Manufacturing Sector Has Been Greatly Exaggerated