U.S. Manufacturing Strength is Underappreciated

By Mike Hart 

It is a common perception that manufacturing is on the decline in the Unites States, that we don’t make things anymore.  Today, the manufacturing sector only accounts for 9% of the work force.  From a GDP standpoint, manufacturing was 27% of economic output in 1950 and accounts for only 12% today. 
 
One of my favorite economists, Alan Reynolds of the Cato Institute, points out in a recent blog post that “those who imagine ‘we don’t make anything anymore,’ as Donald Trump claims, don’t grasp the magnitude of America’s industrial productivity gains.”

“A Wall Street Journal Column Understates the Size of U.S. Manufacturing” by Alan Reynolds 

Productivity gains over the past 60 years have enabled the prices of manufactured goods to fall relative to the prices of everything else.  So even if the actual physical output of manufactured goods has grown considerably, manufacturing’s share of total GDP, which measures output in terms of selling prices, has declined.      

Another favorite economist of mine, Walter Williams of George Mason University, makes similar observations in one of his recent syndicated columns. 

“True or False” by Walter Williams

In this column, Williams points out that the manufacturing workforce has shrunk by 40 percent since 1979.  However, the U.S. worker is now three times as productive as in 1980 and twice as productive as in 2000.  Productivity gains, rather than outsourcing and imports, explains most of our manufacturing job loss, he writes.    

Williams continues that when it comes to labor, U.S. manufacturing is undergoing the same kind of innovation that agriculture went through.  In 1790, farmers accounted for 90 percent of the work force.  By 1900, that dropped to 41 percent, and today only 3 percent of workers are employed in agriculture.

For some hard statistics, blogger Natasha Chart has put together a nice chart that compares percentages of world manufacturing output from 1978 through 2008 for seven major manufacturing countries – Canada, China, France, Germany, Japan, the United Kingdom, and the United States.  From 1978 through 2003, the United States held a stead 22-24% of world manufacturing GDP.  Only in the past five years has it declined to 17.7%, but it is still number one and is growing again. 

“Balance of Trade and Share of Global Manufacturing” by Natasha Chart

I think there is no question that the strength of U.S. manufacturing is underappreciated due to the effect of productivity gains on the size of the work force and the way GDP is measured in prices rather than physical output. 

Where does U.S. manufacturing go from here?  There is great uncertainty in the air regarding taxes, regulations, trade policy, and health care costs.  What you can be certain of, however, is that productivity gains will continue and that manufactured goods will be produced by fewer workers and fewer companies.  

Mike Hart is the co-founder and President of DBA Software Inc., a leading provider of manufacturing software for small businesses.

Comments

[Tiffany McAchran, Sales Manager, VARNA Products]

Happy Day Mike!

Thanks for posting this story and for the comments. We are a small manufacturer in northern California and we are fortunate to still be around. We have worked hard and are finding success in in country and export sales; recently highlighted as an Export Success Story.

We fight as a small business and manufacturer because we believe in the quality and need of our products to help balance trade and provide products making the world a better place.

We are DBA users as well! So thanks for that resource too! It's one cost we don't have to worry about!

Thanks, Mike, enjoy the day and new year 2011 with prosperous healthy smiles to share :)

[Alan Reynolds]

Thanks for that favorite economists line. I try to find out what is and is not real.

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Excellent post. It makes me realize the energy of words and pictures. I learn a lot, thank you! Wish you make a further progress in the future.

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The economy is shifting towards a different sector. New technologies arise from the country while manufacturing, as we would observe, is becoming China's expertise.

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