Economic developers, planners, and politicians often speak about manufacturing in America as a declining phenomenon. We hear about large factory layoffs and manufacturing jobs shipped overseas, and considering the highly visible abandoned factories and barren industrial wastelands that occupy land in our cities throughout the American Rust Belt, it certainly seems like manufacturing is in decline. As we point out in our article on Expanding Output and Shrinking Employment, however, there is more to it than that. Just because manufacturing employment is decreasing (and it has been for quite some time) does not mean that manufacturing output is mirroring that trend.
This month’s indicator tracks trends in U.S. manufacturing output and employment over the last 25 years. The chart below presents quarterly BLS data on (inflation-adjusted) output and jobs for both the manufacturing sector and the entire nonfarm business sector (which includes manufacturing) from 1989 Q1 to 2014 Q1. Values are indexed to 1989 Q1.
Several interesting trends are apparent from this chart:
- Manufacturing employment has undoubtedly declined over the last 25 years. The U.S. has lost a third of its manufacturing jobs since 1989,a not insignificant figure. While the number of manufacturing jobs has increased slightly since the Great Recession, there is an unmistakable long-term downward trend.
- By contrast, the number of nonfarm business jobs has increased by 20% since 1989. While this is a good sign—especially compared to manufacturing employment—almost all of this growth occurred prior to 2000.
- Manufacturing output in real terms has increased by over 50% in the last 25 years, though again, almost all of this growth occurred before 2000. While it has not kept up with nonfarm business output which almost doubled over this period (and has continued to rise significantly since 2000), it is not fair to say that manufacturing is in decline.
So, growth in inflation-adjusted output continues to outpace employment growth—an unavoidable outcome of increased labor productivity. Output per job has risen impressively in the last 25 years. As shown in the next chart, output per job for nonfarm businesses has risen by 61%. This is certainly not a trivial increase, but it pales in comparison to output per manufacturing job, which underwent a 125% increase!
This means that the average factory has been able to more than double the number of widgets it produces without having to hire a single additional worker (or, in many cases, produce the same amount while laying off half of its workers).
Why is this important?
So now we know that referring to manufacturing as being “in decline” is not entirely accurate, as it fails to account for the vast advances in productivity that the sector has made. Still, since around 2000, manufacturing output has not increased perceptibly and represents a declining proportion of our economy (2000 Q2 is the point where the two orange lines in the first chart above start to diverge). And even though manufacturing output is not falling, finding jobs for laid off factory workers and uses for vacant industrial properties remains an ongoing challenge.
And what’s more, not only are we contending with declining manufacturing employment, we are also faced with the fact that employment overall is barely above 2000 levels. (Take another look at the dashed blue line in the first chart.) Meanwhile, according to U.S. Census data the working-age population (all people ages 18 to 64) increased by nearly 14% between 2000 and 2013. If that trend continues, it's a future of fewer jobs and more people competing for them. Again, I refer you to our article on Expanding Output and Shrinking Employment for what this future might look like.