US Manufacturing & Factories Are Not Dead, Just Different

Before we get into today’s topic, here’s a quick update on this morning’s third and final estimate of 2Q GDP. The Commerce Department reported that 2Q GDP rose 1.4% (annual rate), up slightly from the August estimate of 1.1%. This was slightly better than the pre-report consensus of 1.3%. We get the first estimate of 3Q GDP at the end of October, which is expected to show an improvement to 2.5%-3.0%. I’ll believe it when I see it.

Now on to our topic for today. The mainstream media would have us believe that US manufacturing is all but dead, and that most US factories around the country have been shuttered. This is simply not true. Let’s set the facts straight today.

US manufacturing output has been trending higher for 20 years. Manufacturing output hit $2.2 trillion last year, which is almost double the output of the early 2000s, according to the National Association of Manufacturers. This amounts to 12.5% of total US economic output (gross domestic product), which is about the percentage it has been for the last 50 years.

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Yet still we yearn for the 1950s and 1960s when high school dropouts could work as riveters on factory assembly lines and make enough money to provide a middle-class life for their families. Those days have passed, and millions of manufacturing jobs have vanished.

The fact is, however, America continues to be a manufacturing powerhouse, but with a lot fewer workers.

Most Americans focus on the number of US manufacturing jobs that exist, rather than the amount of manufacturing output that actually occurs. America still manufactures a significant amount of the world’s goods, just with incredibly fewer workers.

We can argue about whether that’s a good thing or a bad thing. But the fact is that with advances in technology, this trend has been in place for over a century. Even though worker productivity growth has slowed in recent years, it continues to advance. That is not going to change anytime soon.

The good news is that a lot of factory jobs have returned since manufacturing employment hit its low point in 2010 at 11.5 million jobs. Today, 12.3 million people work in manufacturing — 8.5% of the US workforce — or almost a million more factory jobs than five years ago.

Still, that’s 7 million fewer factory positions than we had when manufacturing peaked in 1979 at 20 million workers and manufacturing jobs accounted for about one-third of the workforce. Undeniably, this has inflicted a lot of misery and heartache on laid-off factory workers and their families.

The gutted and boarded-up buildings in so many manufacturing-dependent towns provide a searing backdrop that drives this tragedy into the heart of the American psyche. But we should not lose sight of the fact that since 1979, many sectors of the economy have flourished, creating 59 million new jobs.

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It is true that millions of US manufacturing jobs moved to China, India, Southeast Asia and other low-cost areas. But it is also true that many factories in the United States today are filled with high-tech equipment, all manner of robotics and sophisticated scheduling and inventory techniques. This has greatly enhanced manufacturing efficiency and productivity.

In other words, we are rapidly moving away from simple assembly lines where workers put “widgets” in boxes or put the exact same part on the exact same product. Workers in manufacturing are increasingly being demanded to “multi-task.”

Put differently, today’s factory workers must be adept at operating high-tech equipment. Such manufacturing jobs are simply not available to high school dropouts, unless they have attended vocational schools that teach high-tech skills.

It is estimated that there will be demand for at least 3.5 million new manufacturing jobs over the next decade, but at least 2 million of those jobs may go unfilled because of the “skills gap,” according to the National Association of Manufacturers.

The bottom line is that manufacturing output in the US today is essentially as strong as ever. It’s just different and requires fewer, but much more skilled workers.

Likewise, US factories are not dead – they’re just different – using much higher technology. The key is we need more highly skilled workers to operate those technologies.

The question is, where will those workers come from? Clearly more young people need to go to vocational schools. Yet Hillary wants to give them all free college. That’s a whole other issue for another discussion. I’ll leave it there for today.

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