Tea Leaf: U.S. manufacturing shows pain, promise

The common wisdom emerging from the national media frequently notes that the American economy has lost its ability to "make things" — that we lost most of our manufacturing capability to China and to Mexico. The common wisdom notes that we have simply become a nation of hamburger flippers, as well as a nation where we merely trade information with each other.

The common wisdom largely adds the U.S. to other formerly powerful nations on the scrap heap of history, a nation whose best days are behind us. The facts are a bit different.

Job losses

There is no question that employment losses within the U.S. manufacturing sector over the past 30 years have been massive. We all know a neighbor, a friend or family member who lost their job in manufacturing, particularly in the industrial Midwest.

Total U.S. manufacturing employment peaked in 1979 at 19.6 million people. That total has fallen consistently and painfully to 11.6 million now — a loss of 8 million jobs, a loss of 40 percent of all manufacturing positions.

The common wisdom notes that most of these jobs left in search of less-costly havens, initially Mexico and then China. This is certainly true for a share of the jobs.

However, the most important factor leading to lesser employment was major gains in worker productivity. We simply make more goods with fewer bodies. While overall U.S. worker productivity gains have run just under 3 percent annually over the past 10 years, productivity gains in manufacturing have run two to three times higher.

U.S. ranking

It might surprise you that the U.S. continues to lead the world in manufacturing output. We produce more than the Chinese, the Japanese, the Germans, etc. U.S. output exceeds that of China by 40 percent.

It might surprise you that the U.S. share of global manufacturing output, at 20 percent to 25 percent, is essentially the same as it was 40 years ago.

It might surprise you that output per U.S. worker is three times what it was in 1980 and twice as high as it was in 1990.

Making a comeback?

U.S. manufacturing employment actually rose by 136,000 net new jobs during 2010, the first annual increase since 1997. Moreover, the weather-distorted January 2011 employment data saw an estimated jump of another 49,000 jobs, the largest monthly gain in 12 years.

Various estimates suggest that the American economy will add 300,000-350,000 net new manufacturing jobs this year, a rise of roughly 3 percent. Longer-term estimates suggest the manufacturing sector could add 1 million jobs over the next four to five years. Such a rise clearly won't make up for the loss of 2 million manufacturing jobs in the Great Recession, but it helps.

U.S. manufacturers have largely thrown in the towel on lower cost, lower skill, lesser profit margin manufactured products, such as toys and electronics. At the same time, according to the Associated Press, U.S. manufacturers have moved aggressively toward more complex and expensive goods requiring specialized labor, including health care products, jet fighters, computer chips and industrial machinery.

Outsourcing of jobs

American companies have continued the exodus of former American jobs to other less-costly parts of the world, although the pace has slowed. The rationale has also changed somewhat.