Is Manufacturing Making It?

I'll Be On The “Keep it Made in America” Town Hall Tour Next Week

Dave Johnson — Thu, 07 Oct 2010 12:17:47 -0400

I will be joining and writing about the "Keep It Made In America" Town Hall tour. (Click through for more info and a map.) The tour is from October 12-29 and I will be joining from October 12-19.

The official tour announcement:

Creating Jobs Takes Center Stage at "Keep it Made in America" Fall Tour
Town Hall Meetings in 10 States Ask Political Candidates, "How Will You Create Manufacturing Jobs?" October 12th-29th

WASHINGTON, DC. Oct. 4, 2010 - With the midterm election less than five weeks away and all polls showing the economy and jobs topping the list of voter concerns, the Alliance for American Manufacturing (AAM) has announced its 2010 "Keep it Made in America" Tour. The non-partisan group will hold Town Hall meetings in 10 states to help voters directly question their candidates and elected officials on such key issues as unbalanced trade with China and rebuilding U.S. manufacturing for the global economy.

"A majority of likely voters say the U.S. no longer has the world's strongest economy and that Washington isn't doing enough to rebuild manufacturing," said AAM Executive Director Scott Paul. "People are greatly concerned about our lost standing. They know China is overtaking us, and they want the United States to be number one again.

"We are providing voters with a chance to ask their candidates directly, 'What are you going to do about restoring manufacturing and the millions of jobs we've lost to China,'" Paul said. "We've invited the candidates. Let's see if they'll face the voters."

The Town Hall meetings, which will include a panel of local business, labor, and civic leaders, as well as remarks by various federal and statewide elected officials and candidates, will focus on:
· The need to create good jobs for the 21st Century;
· The importance of fighting for manufacturing as the key to any economic recovery; and
· Leveling the playing field for American workers and businesses in the global marketplace.

"The voters get it," said Paul. "Will the candidates?"

Here is a Business News Daily story about the tour, Advocates of U.S. Manufacturing Prepare Pre-Election Tour,

Preparing for the elections, the Alliance for American Manufacturing, a nonpartisan, nonprofit trade group, is launching its “Keep it Made in America” tour, a series of town hall meetings in 10 states where local business, labor and civic leaders will help voters question candidates on issues, particularly the state of manufacturing jobs in the United States.

... In each of the 12 cities, the group has scheduled a panel of local leaders and invited federal and statewide elected officials and candidates to discuss job creation, manufacturing’s importance in economic recovery and “leveling the playing field for American workers and businesses in the global marketplace.”

Here is the tour schedule. I will be joining from Jackson, Michigan on October 13, through Canton, Ohio on October 19.

- Oct. 12: Hartford, Conn., 6 p.m.
- Oct. 13: Jackson, Mich., 5:30 p.m.
- Oct. 14: Lorain, Ohio, 5 p.m.
- Oct. 15: Wheeling, W.Va., 5 p.m.
- Oct. 18: Erie, Pa., 5:30 p.m.
- Oct. 19: Canton, Ohio, 5 p.m.
- Oct. 20: Wayne, Pa., 6 p.m.
- Oct. 20: Merrillville, Ind., 5 p.m.
- Oct. 21: Asheville, N.C., 5 p.m.
- Oct. 27: St. Louis, 5 p.m.
- Oct. 28: Concord, N.H., 6 p.m.
- Oct. 29: Wausau, Wis., 5 p.m.

If you are going to be in one of those towns please come to the Town Hall. Please RSVP here.

Bravo To Congress' Making It In America Push -- What It Still Needs

Dave Johnson — Wed, 28 Jul 2010 15:04:04 -0400

House leaders deserve praise for fighting for working people by launching a "Make It In America" initiative which they officially unveiled today. The country still badly needs an immediate job-creation effort, but this is a very important longer-term initiative for reviving America's manufacturing base and restoring our competitiveness in the world economy. Good work!

Manufacturing is the core of our country's income. Making things that we sell is how we earn money to buy things that others make. This is why it is so important to restore America's manufacturing base and the infrastructure that supports it. People want to go into a store and have a choice to buy things that are made here.

This week these important bills made it to the House floor: (click through for details)

National Manufacturing Strategy Act

Clean Energy Technology Manufacturing and Export Assistance Act

End the Trade Deficit Act

As the Congress rolls out this initiative here are important components it should include:

Buy American

Public money should be going to our people. This is what other countries, like China, are doing with domestic preferences and "indigenous innovation" policies.

Pass "Made in America" policies in every phase of any manufacturing plan, boosting domestic content requirements in federal procurement, (state and local government should do the same with their procurement policies).

Trade policies

(Is "trade" even the right word for making the same things in other countries that we used to make here.)

We are doing very little to combat the mercantilist nations, in particular China and Germany. China manipulates its currency and will not match its exports with imports. Germany is limiting domestic consumption -- the resulting trade surplus is out of balance.

End tax incentives to move production overseas; create incentives to keep production at home. Current laws allow corporations to defer taxes on income earned overseas, which almost forces companies to develop schemes to make goods outside the country.

Require tariffs on goods from countries that manipulate currency, to overcome the pricing advantage this creates.

What about a "democracy tariff?" This is a tariff on imports to counter the advantages that come from moving factories to countries where the people don't have the power or opportunity to insist on fair wages and worker and environmental protections.

Encourage the "Green Economy"

Stimulate American manufacture of wind turbines, solar panels, biofuels, etc. This creates jobs and makes us competitive in the new green economy that will replace the carbon economy.

Create a domestic non-carbon energy market with a strong Renewable Energy Standard (RES) and a direct carbon tax (since the Senate has blocked cap-and-trade).

Use government procurement to help trigger this market. Phase in purchases of non-carbon energy, creating a strong market, triggering increased investment. Procurement should require American-made components. For example, wind-power purchases should require American-made turbines are used.

Infrastructure

Our roads, bridges, rail, water and electrical systems, etc. are the backbone of a competitive economy. The infrastructure enables business to thrive. If it is not kept in good working order and up-to-date (and it has not been), businesses do not thrive (and they aren't).

We need the Congress to create a National Infrastructure Investment Bank, capitalized with public money to lure private capital for investment in rebuilding key components of America's infrastructure. Stop the obstruction - we need this!

Rebuild existing, crumbling infrastructure. This "spending" investment earns the money back many times over.

Pass the surface transportation reauthorization bill. This will boost American industry as while creating jobs, saving energy and incentivizing green development.

Build new infrastructure-for-the-future like high-speed internet and high-speed rail and a national electric "smart grid".

Require companies to make the infrastructure components in America.

This is a brief outline of some of the needed components in a Make It In America strategy. These are things that Congress can do. Congress must not back away from bold reforms in the face of resistance from the right-wing monopolist business lobbyists, who speak for the job exporters, and their "free-trade ideologue" allies.

Manufacturing Recovery Myth Response

Hale Stewart — Thu, 04 Mar 2010 14:36:43 -0500

In response to my article "No, Virginia, Manufacturing Isn't Dead" Mr. Scott has published as article titled "The Myth of the Manufacturing Recovery." Regrettably, his rebuttal is deeply flawed both in tone and substance.

First, he notes that I plotted a non-logarithmic chart of productivity growth instead of a logarithmic one, the implication being that a logarithmic chart would somehow arrive at a different conclusion. Of course, the first question a reader of Mr. Scott's article should ask is, "if this chart is so damning, why did Mr. Scott not include it is his article? The answer is clear: the chart in logarithmic scale and normal scale show the exact same situation: a chart that shows a clear expansion of US manufacturing output. See this on page 5 of the complete PDF's from the Federal Reserve. Secondly, according to the Federal Reserve, growth in manufacturing output did not decrease after 2000 as Mr. Scott claims. According the same source (the Federal Reserve's industrial production chart), manufacturing output increased from 2000 until the end of 2007. At the same time, manufacturing jobs dropped. This contradicts the root of his argument – that there was somehow no growth in manufacturing from 2001-2007. This is simply not true according to Federal Reserve data.

Next, Mr. Scott notes that my co-blogger and I used a chart of manufactured imports and manufacturing jobs compared same to to demonstrate there is no relationship between the trade deficit and manufacturing employment. What Mr. Scott fails to recognize is this: if the US were replacing manufactured goods produced in the US with manufactured imports from other countries, there would be a relationship between imports of manufactured goods and manufacturing jobs. Yet as the US started to import more manufactured goods there were not a concomitant decrease in employment jobs. In fact, during the latest recession, the pace of good’s imports decreased substantially (meaning the US was importing far less) yet at the same time manufacturing jobs decreased at an accelerated rate. In addition, my co-blogger Silver Oz demonstrates this lack of causal relationship between the trade deficit and manufacturing in this article, titled, Free Trade Is Not the Job Killer.

Finally, consider this graph from the St. Louis Fed’s system

As Silver Oz notes:

Let's examine this a bit further. From the end of the 1990 recession to the pre-2001 recession peaks productivity was up about 47%, industrial production was up about 61%, and goods employment was up about 9.3% (I used the end of 1990 recession value and not the trough in actual goods employment here). So during the 90s, production outstripped productivity (although both were up a ton), while job creation came in at only +9.3%, obviously lagging. However, from their 2001 recession troughs (again using the end of the recession for jobs), productivity was up about 25%, industrial production was up about 15%, and jobs declined by about 4.3%. This graph demonstrates that when productivity outstrips production goods jobs decline, but that even when production outstrips productivity job growth can be anemic so long as the productivity growth is still substantial. The current recession is showcasing productivity's effects on jobs very well, as while production has dropped about 13% during this recession, productivity is actually up over 5%, and industrial production is now at it's 2002 levels, but with roughly 20% fewer workers making those goods.

In short, while I appreciate Mr. Scott’s rebuttal, the facts do not support his theory.

US Manufacturing -- Losing Out?

Clyde Prestowitz — Tue, 02 Mar 2010 14:01:01 -0500

Clyde Prestowitz is founder and President of the Economic Strategy Institute. It is posted as part of our series, Is Manufacturing Making It?

Since manufacturing is about 11 percent of U.S. GDP, anyone who has been saying it’s dead has obviously been engaging in hyperbole. But few if any serious observers have been saying this. Rather, what they have been saying is that U.S. manufacturing has been declining unnecessarily and at an unnatural rate that is harmful to the American standard of living. Production index statistics that show rising output do not disprove this.

A large portion of U.S. manufacturing output is of non-tradable or not easily tradable goods, things like toilet tissue, ply-wood, soap, catalogues, and the like. This is the core of our manufacturing base and it will always be with us. It’s not dead and it’s not going to die. Indeed, as the overall economy grows, this production of non-tradable or not easily tradable goods will grow along with it. If we did not produce any tradable goods at all, our manufacturing output would still show an increase when the economy grew.

For most of its history, America has also been a major producer of tradable goods – things like steel, airplanes, semiconductors, machinery, appliances, and so forth. Indeed, we still produce some of these things, but far fewer than we used to. As a result, manufacturing as a percent of GDP has been in steady decline from about 25 percent in the early 1980s to today’s roughly 11 percent. This decline has been particularly precipitate in the past decade during which there has been about a 6 percentage point plunge.

To some extent, this decline is natural and inevitable. Manufacturing as a percent of GDP tends naturally to decline in all economies as they develop and mature. This is even happening to China’s economy now despite its having become the workshop of the world. But the decline in the manufacturing share of the U.S. economy has been far more dramatic than in any other industrialized economy. Even in the UK which has long emphasized services as the core of its economy, manufacturing is nearly 13 percent of GDP. For Germany, Japan, France, Italy, and most other OECD countries the shares range from 15 to 25 percent. Since America has roughly the same or better manufacturing oriented resource endowments as these countries, one would expect its manufacturing share of output to be as high or higher.

That it is not, is a major concern because manufacturing contributes disproportionately to support of R&D, product innovation, and to gains in overall economic productivity. In other words, if America is doing less manufacturing than it could competitively be doing, then it is underperforming in research, innovation, and productivity. This is the major issue.

One way to think about this is to think of a company that produces widgets in an economy that has a rapidly growing widget market. The company’s sales, production, and profits grow rapidly, and its management issues glowing reports to shareholders and stock analysts. But it is actually not growing as fast as the market or as its competitors. In other words, it is losing market share even as its absolute production grows. For a while all seems wonderful, but eventually its share of the market is too small. Distributors refuse to carry its product and it can’t afford to spend to develop new products and eventually goes out of business.

As for employment, because manufacturing pays better wages than services on average, it is desirable that the United States have all the manufacturing employment that it can have on a competitive basis. The manufacturing employment numbers presented here , like the output numbers, are focused on absolute numbers rather than the important percentages. If the absolute number of manufacturing workers was stable during a period of substantial expansion of the work force, then manufacturing employment has fallen as a percent of total employment and the high wages associated with manufacturing are being paid to a smaller and smaller portion of workers so that overall national income is falling or at best stagnating. Which is in fact, exactly what has been happening.

This is not at all a pretty or reassuring picture. And it is clearly the result of mercantilist international trade reducing what under normal market conditions would be the expected level of U.S. tradable goods output and of U.S. manufacturing employment.

The Myth of the manufacturing recovery

Robert E. Scott — Mon, 01 Mar 2010 18:12:36 -0500

This post originally appeared at The Huffington Post, Robert Scott is Senior International Economist and Director of International Programs, Economic Policy Institute. It is posted as part of our series, Is Manufacturing Making It?

Some bloggers have suggested that manufacturing is doing well, just because output has grown for the past few months. One sets up a straw man in a piece title "No, Virginia, U.S. Manufacturing isn't dead," but no serious economist claims that manufacturing is dead. Manufacturing employed 11.5 million workers in January, 2010, 8.9% of U.S. non-farm employment. However, nearly 6 million manufacturing jobs have disappeared since 1998, and manufacturing's share of GDP has fallen by a similar share in that time. The Bonddag blog and many others claim that productivity growth is responsible for manufacturing job loss, but they've got it wrong. Growing manufacturing trade deficits from 1998 to 2006, and the worst recession since the 1930s are responsible for the vast majority of all manufacturing job loss. We can reclaim a large share of these jobs by shrinking the trade deficit and putting this recession behind us.

I explained the relationship between manufacturing output, productivity growth, trade deficits and job loss in my Snapshot on Manufacturing Job Loss: Productivity is not the culprit. It shows that productivity has always grown rapidly in manufacturing--there was no big upsurge in the past decade. The recent uptick in productivity occurred in other sectors of the economy, which does help explain why job growth economy-wide was so terrible in the Bush era, but that's another story. With manufacturing, the story is simple.

In the past, we had high growth in real output and high output growth in manufacturing leading to stable employment. Then, after 2000, productivity growth continued but output growth flat-lined and manufacturing employment collapsed. The reason: a soaring trade deficit in manufacturing products. People kept buying more manufactured goods; they just bought them from China and other exporters, not from U.S. manufacturers. Josh Bivens reviewed this history in his earlier Snapshot on Trade Deficits and Manufacturing Employment.

In the past, employment and the trade deficit in manufacturing were roughly stable for 30 years from the late 60s through the late 90s.* Then the Asian financial crisis hit in 1998. The value of the dollar soared along with the manufacturing trade deficit. Manufacturing employment fell like a rock, with a lag of about 2 years, as shown in the graph below. The manufacturing trade balance did start to improve in 2007, but the big drop in the deficit came in 2008 and 2009, and was caused by the recession. The recession was also responsible for the loss of about 2 million of the 5.7 million manufacturing jobs lost since 1998.

Bonddad is misguided, and his analysis is confused. His first mistake is to plot a chart of the U.S. Industrial Production Index since 1960 with a trend line (it's clearly not a fitted trend, but something done with a ruler or graphing software). He says that the increase in manufacturing output is "continual", suggesting that growth has been steady, but that's flat out wrong. One problem is that you can't calculate or "eyeball" growth rates from a linear plot of output. Every introductory, undergraduate finance student learns that you have to plot stock prices on a logarithmic graph to spot changes in growth rates. This is simply because growth compounds--remember, your grandmother taught you that bit of wisdom about the advantage of putting your money in a savings account.

In fact, growth in U.S. manufacturing output dropped sharply after 2000, as shown in my snapshot above. If we use the FRB industrial production index and the business cycle peaks shown on Bonddad's graph, and calculate simple compound average growth rates, the index grew 4.1% per year between July 1990 and March 2001 (the Clinton Business cycle). However, growth in the index fell to only 1.8% between March of 2001 and December 2007. The BLS output numbers show even slower growth in the Bush era, as indicated in my snapshot above.

Bonddad makes a number of mistakes in analyzing the relationship between trade and employment. First, he cites a chart from SilverOz that supposedly compared imports of total goods and services with manufacturing employment. However, exports matter too, and for manufacturing, what is most relevant is the manufacturing trade balance, the difference between imports and exports of manufactured goods. The graph reportedly includes imports of both services and non-manufactured commodities, which are clearly un-related to manufacturing. Furthermore, exports sales can support domestic employment, and imports displace employment. You have to look at changes in the manufacturing trade balance to get an accurate picture of the impact of trade on the demand for manufacturing output and labor.

But there are more problems with Bonddad's trade and employment graph. It has a blue line which purports to measure imports of goods and services (measured with a negative sign, which is appropriate). But this series never exceeds $700 billion in imports. However, U.S. imports exceeded $2.5 trillion in 2008. Something is wrong here. It's not the trade deficit either, because that was $-760 billion in 2006. Finally, the story is about manufacturing employment. The graph reports employment in "goods producing industries," which include a number of domestic, non-manufacturing industries. The graph should compare manufacturing employment with the trade balance in manufactured goods, as I do in the chart above.

To close the trade gap and rebuild manufacturing will required a coherent trade and industrial strategy. We must end currency manipulation by China and other Asian countries, aggressively attack unfair trade practices and rebuild manufacturing. We also need to create at least 4 to 5 million jobs in the rest of the economy to help end the recession, and rebuild demand for manufactured products. These are topics for another day. That discussion should start by acknowledging that productivity growth is a key source of strength and competitiveness in manufacturing, and is not responsible for manufacturing job loss.

*The exception was the period from 1979-1989, when the trade deficit also soared and manufacturing employment also dropped. This was also caused by an over-valued currency, which was corrected by the 1985 Plaza Accord. Subsequently, the trade deficit declined and manufacturing employment stabilized.

For more information, please visit EPI.org.

The Mismeasure of Manufacturing

Natasha Chart — Mon, 01 Mar 2010 16:01:58 -0500

This post is part of our series, Is Manufacturing Making It?

Using statistics primarily sourced from the Federal Reserve, we are repeatedly told that manufacturing isn't dead, just manufacturing employment, due to all our productivity gains. I must disagree that it's all about productivity, as did a group of economists who met last November to discuss government productivity measures, Louis Uchitelle of the New York Times reporting (via Curious Cat:

... The fundamental shortcoming is in the way imports are accounted for. A carburetor bought for $50 in China as a component of an American-made car, for example, more often than not shows up in the statistics as if it were the American-made version valued at, say, $100. The failure to distinguish adequately between what is made in America and what is made abroad falsely inflates the gross domestic product, which sums up all value added within the country.

American workers lose their jobs when carburetors they once made are imported instead. The federal data notices the decline in employment but fails to revalue the carburetors or even pinpoint that they are foreign-made. Because it seems as if $100 carburetors are being produced but fewer workers are needed to do so, productivity falsely rises — in the national statistics. ...

This is a problem that even extends, as the article goes on to explain, to the service industry. If your accountant is outsourcing some of their tax processing work to India on the cheap, this also boosts US productivity statistics. Tracking the real impact of that imported carburetor, or any other imported intermediate input (say that three times fast,) in the productivity statistics is presumed to require years of work and congressional funding.

Imported Intermediate Inputs

Courtesy also of the Curious Cat blog, some of the economists who realize that manufacturing productivity measurements are distorted do work at the Federal Reserve and wrote about it in a paper entitled, "Offshoring Bias: The Effect of Import Price Mismeasurement on Manufacturing Productivity" (pdf), by Susan Houseman (Upjohn Institute), Christopher Kurz (Federal Reserve Board), Paul Lengermann (Federal Reserve Board), and Benjamin Mandel (Federal Reserve Board). Emphasis mine:

... [We document] the rapid rise in both the levels and share of materials used by U.S. manufactures that are sourced from abroad. Over the ten year period from 1997 to 2007, the import share of total materials jumped roughly 50 percent, as the fraction of materials used climbed from 17 to 25 percent.

... In addition, [the Bureau of Economic Analysis] uses import and producer price indexes from [the Bureau of Labor Statistics] to construct industry-level intermediate input price indexes. BEA and BLS, in turn, use intermediate price indexes to compute industry and sector-level value added and productivity measures. If import price growth is overstated, it follows that the real growth of imported inputs is understated and industry value-added and productivity measures are overstated. Real GDP, computed as the sum of real value added across all sectors of the economy, also will be upward-biased.

... Although preliminary, our analysis presents evidence that offshoring bias has been substantial in recent years. We find that the growth rate of imported intermediate input prices may have been biased upwards by between 16 to 35 percentage points, which in turn has led the average annual growth rate in manufacturing productivity to be overstated by 0.1 to 0.3 percentage point or by between 9 and 20 percent over the entire period from 1997 - 2007. These numbers are significant, as 0.1 percent average annual growth rate for multifactor productivity is roughly equal to the average annual contribution of capital to manufacturing growth from 1997 to 2007. ...

The paper explains that because the share of imports from developing countries has been going up, and the prices of those imported manufacturing inputs has been dropping relative to equivalent inputs from developed nations, the cost of inputs to manufacturers has also been underestimated.

What this means, the authors detail, is that because rapidly falling input prices aren't measured properly in the import price index, much of the effective value add is counted after an imported product enters the US market. In other words, the US is taking China's productivity gains and adding them to its own productivity balance sheet, falsely inflating both manufacturing productivity and GDP.

Not Just Employment

So are the employment statistics the only place this mismeasured offshoring shows up? I don't believe so.

Consider the export:import ratio, which has been going down in the US, but up in Germany over most of the last 30 years. Are German workers likely to be less productive, or work in less automated environments, than US workers? Is that question too silly to even be typed?

Indeed, as Mark Zandi, chief economist and co-founder at Moody's Economy.com, noted in testimony before the Senate Banking Committee last July, the opposite is likely the case. Emphasis mine:

... The unprecedented decline in manufacturing during this downturn is the result of the collapse of the vehicle and housing industries, a deep recession throughout the global economy, and draconian cuts by U.S. businesses in their investment in technology and other equipment. The longer-running decline in U.S. manufacturing is largely due to the loss of market share to global competitors; since the turn of this decade, most of the decline in market share has been to Chinese manufacturers. ...

If automation-mediated productivity increases are a prime factor in manufacturing job losses, how have employers managed to increase automation while making "draconian cuts" in equipment and technology spending? Particularly while noting that output has gone down in the last decade. And again, we're losing market share in what are evidently wholly viable industries, whose end products are still very much in demand by consumers. This leaves tons of money and millions of jobs on the table every year, as noted previously.

Richard McCormack from "The Plight of American Manufacturing," once again:

... U.S. demand for manufactured goods has increased by 400 percent since 1980, says Revere Copper CEO Brian O'Shaughnessy. But U.S. production of those goods increased by 40 percent. ...

This is the living definition of losing market share.

US manufacturing is losing its footing in consumer markets both at home and abroad, and while the losses aren't total, they're serious. This has been ignored because the financial sector that's been funding the offshoring craze was doing well, and because many observers don't consider job losses to be that big a deal. Now that the finance industry isn't doing well and job losses have been revealed to be a very big deal, now that free trade has been revealed as a unilateral disarmament, can we start caring about this again, please?

The Vicious Cycle

As my colleague Dave Johnson recently pointed out, workers who make $70/week can't buy Whirlpool refrigerators. Nor, for that matter, can they buy new Ford cars. They can't afford mortgages or unsecured lines of credit at the mass consumer levels that would support a robust financial services industry. They can't go out to eat at sit-down restaurants, or afford to patronize other businesses that comprise a strong service sector economy.

Who, in other words, are $70/week workers in Mexico going to be making those refrigerators for? Sure as blazes, it isn't going to be for laid off manufacturing workers in the US who've been pushed into bankruptcy and defaulting on their mortgages in the wake of yet another jobless 'recovery'.

Because the big problem with the declining fortunes of US manufacturing employment is that Wall Street profits become the only thing that recovers after recessions, which seem to be coming thick and fast these days. If that's the kind of future we want, we should keep our eyes fixed firmly on outdated productivity statistics. If it isn't, we should start looking at having a sensible industrial strategy that creates a lot of jobs.

No, Virginia, US Manufacturing Isn't Dead

Hale Stewart — Thu, 25 Feb 2010 13:31:13 -0500

This cross-post by Hale "Bonddad' Stewart on manufacturing first appeared on his site the bonddad blog. Please visit his site. This begins a back-and-forth dialog series, Is Manufacturing Making It?.

First -- a big hat tip to co-blogger SilverOz for starting this line of thought.

There is a common theme across the internet: US manufacturing is dead and it's never coming back. Well, there's a big problem with that analysis: it's not true. In fact, as the chart above indicates, it's actually false. Note that since 1960, the index of industrial production has risen from a little below 30 to its current level of about 100. And note the increase is continual -- meaning the number didn't just hover around 30 for most of that time only to spike up in one big move. The index has continually risen over that entire period.

Instead, what people are commenting on is the drop in manufacturing employment. Consider these two charts.

Durable Goods Employment remained fairly steady at 10 million to 11.5 million employees between the mid-1960s to the early 2000s. Then total employment dropped like a stone, losing three million people over the last 10 years. These are levels last seen in 1950.

Non-durable goods manufacturing is even worse. From the mid-1960s to the early 200s, total employment in this area hovered around a 6.8 million. However, starting in 2000, the number fell off a cliff, losing almost 2 million people. This is the lowest the number has been in over 60 years.

However, over the last 15 years we've seen an increase in manufacturing productivity. Consider the following:

Manufacturing Output per hour has increased continually since records have been kept, as has

Multi-factor productivity.

What does all this information tell us?

US Manufacturing is alive and well. The real issue is manufacturing employment, which is dropping like a stone. And the reason for the drop is an increase in productivity.

In addition, SilverOz adds the following:

Many people have a knee-jerk reaction to the decline in manufacturing jobs and immediately blame outsourcing/imports for this decline. The following graph demonstrates that the linkage between increased imports and a decline in manufacturing jobs is virtually nonexistent.

What we clearly see is that imports increased quite dramatically over the last 30 years, while good producing jobs remained fairly level (dipping during recession and then recovering) until this last recession, which took a huge toll on manufacturing employment even though imports actually declined. This again plays much better to the argument that productivity increases are the greatest contributor to our decline in manufacturing employment than the outsourcing/imports argument.