The Disappearance of Manufacturing?

Transcription

1 The Disappearance of? Purdue University West Lafayette, Indiana April 1, 4 William Strauss Senior Economist and Economic Advisor Fact? The United States is losing its manufacturing base Economic Assessment 1

2 employment as a share of national employment has been declining for over 5 years share of total nonfarm employment percent '5 '6 '7 '8 '9 ' The number of jobs in manufacturing has been relatively stable over this period, averaging.1% growth per year since 1947 employment millions '5 '6 '7 '8 '9 ' Economic Assessment 2

3 The service sector has grown by more than fivefold over this period, averaging 2.5% growth per year since 1947 Nonfarm employment millions Service 6 4 Manuf acturing 194 '5 '6 '7 '8 '9 ' This has decreased manufacturing s share of total jobs and increased the service sector s share Share of total nonfarm employment percent Service '5 '6 '7 '8 '9 ' Economic Assessment 3

4 While manufacturing employment was flat over the past 5 years, manufacturing output increased by 3.7% per year output Index (1997=1) '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '2 This translated into nearly a 6 percent increase over this time period Index (1997=1) 1 Millions of w orkers Output -left scale Employment - right scale 194 '5 '6 '7 '8 '9 ' Economic Assessment 4

5 The increase in output can be attributed to strong productivity growth experienced by the manufacturing sector Productivity Index (195=1) '6 '7 '8 '9 ' Over the past 5 years productivity in the manufacturing sector increased 2.9% per year, more than the 2.3% for the nonfarm business sector Productivity Index (195=1) Nonfarm business '6 '7 '8 '9 ' Economic Assessment 5

6 Productivity in the durable manufacturing sector has been stronger than in nondurable manufacturing Productivity Index (195=1) 55 5 Durable manufacturing Nondurable manufacturing '6 '7 '8 '9 ' The divergence in productivity appears to occur around the mid-7s Productivity Index (1975=1) Nonfarm business '6 '7 '8 '9 ' Economic Assessment 6

7 This is especially apparent in durable manufacturing Productivity Index (1975=1) 3 25 Durable manufacturing 15 1 Nondurable manufacturing '6 '7 '8 '9 ' Strong productivity growth has allowed the manufacturing sector of the U.S. economy to grow faster than the overall economy Output Index (1947=1) 8 7 Industrial Production 6 5 Real GDP '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '2 Economic Assessment 7

8 Due to strong productivity growth, price increases in the manufacturing sector have been lower than overall price increases Inflation Percent 6 5 Consumer price index '92 '97 '2 The lower relative prices in the manufacturing sector has lead to manufacturing comprising a smaller share of GDP over time GDP Share Percent FIRE Services 1947 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '2 Economic Assessment 8

9 The current doldrums in manufacturing employment are closely linked with the most recent economic recession workers have suffered steep employment declines over the past few years Production Workers Trough = Upper and low er bounds around GDP troughs Current cycle Quarters away from trough of real GDP Late expansion and recession Recovery or expansion Economic Assessment 9

10 But so has everyone else Total Nonfarm Employment Trough = Upper and low er bounds around GDP troughs 98 Current cycle Quarters away from trough of real GDP Late expansion and recession Recovery and expansion The economy has been hit hard by a number of negative economic shocks over the past few years The equity market collapse that began in early Soaring energy prices in late and again in late 2 The September 11, 1 attack on the United States The corporate governance scandals that started in late 1 The geopolitical uncertainties regarding Iraq that began in the summer of 2 Economic Assessment 1

11 These shocks hampered the current economic expansion Real Gross Domestic Product Trough = Upper and low er bounds around GDP troughs Current cycle Quarters away from trough of real GDP Late expansion and recession Recovery or expansion The loss of manufacturing employment is consistent with the declines in overall manufacturing production Industrial Production Trough = Upper and low er bounds around GDP trough Current cycle Quarters away from trough of real GDP Late expansion and recession Recovery or expansion Economic Assessment 11

12 Productivity in the overall economy has grown at a faster rate than during any previous expansion this is a double edged sword Productivity - Nonfarm Business Sector Trough = Upper and low er bounds around GDP troughs Current cycle Quarters away from trough of real GDP Late expansion and recession Recovery or expansion Productivity within the manufacturing sector has also been growing at a faster rate than during any previous expansion Productivity - Sector Trough = Upper and low er bounds around GDP troughs 1 96 Current cycle Quarters away from trough of real GDP Late expansion and recession Recovery or expansion Economic Assessment 12

13 Recent manufacturing employment losses have occurred across a number of countries among big economies, 22 million jobs have been lost Percent change in manufacturing employment from 1995 to 2 percent India Austrailia Netherlands Malyasia Mexico Taiwan Philippines Canada Spain Brazil Japan China United Kingdom Russia South Korea United States Sweden Germany France Italy Fact? jobs are higher paying jobs, and if we lose these jobs, we will become a nation of hamburger flippers Economic Assessment 13

14 Wages are higher in the manufacturing sector Average Weekly Wage Dollars Services '7 '75 '8 '85 '9 '95 ' However, over the last fifteen years, service sector wages have been growing at a faster rate 2.9% per year for manufacturing vs. 3.4% per year for services Growth in Average Weekly Wages Percent Services '7 '75 '8 '85 '9 '95 ' Economic Assessment 14

15 Union membership has played a major role in manufacturing having higher relative wages and consequently encouraging the substitution away from labor to capital Union employment as a share of labor force Percent '7 '75 '8 '85 '9 '95 ' Since 198, employment cost increases in the service sector has exceeded the manufacturing sector Employment Cost Index Index (198=1) Service '85 '9 '95 ' Economic Assessment 15

16 Standards of living in the United States have never been higher Real disposable personal income - per capita chained dollars $3, $25, $, $15, $1, $5, $ 196 '7 '8 '9 ' Lessons from the farm sector Economic Assessment 16

17 We are producing more in our farm sector than at anytime in our history Real Gross Domestic Farm Business Product Billions of chained dollars '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '2 And we are accomplished this remarkable feat with just 2.4% of our employment devoted to farming Share of Total Employment Percent 7 6 Services Manuf acturing 1 Agriculture Economic Assessment 17

18 Chicago Fed Letter - June 3 Questions Economic Assessment 18