YOU DECIDE: Is manufacturing back?

Date posted: February 3, 2012

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

You’ve perhaps read some headlines or seen some news stories saying, “U.S. manufacturing has made a comeback.” But is it true? And if so, why? And what does it mean? Is manufacturing headed back to being a dominant part of our economy, as it was years ago? Are the same manufacturing trends evident in the North Carolina economy?

I’ll provide the data and analysis and let you decide on the conclusions.

First, the major question: Has national manufacturing rebounded? By two broad measures, the answer is an unqualified “yes.” In terms of the quantity of manufactured products, U.S. factories set a record in 2011. The amount we made was 9 percent higher than before the recession and double the amount of 20 years ago.

We get the same result looking at the dollar value of manufactured goods. The sales value (after eliminating general price inflation) of manufactured products was at an all-time high in 2011 and was 10 times higher than after World War II.

That’s right; you read me correctly. Both the amount and value of U.S. manufactured goods were never larger than in 2011!

A big part of the reason behind the manufacturing boom is exports. Sales of U.S.-manufactured products to foreign countries have surged. For example, from 2005 to 2010, sales of U.S.-manufactured exports increased three times faster than our purchases of manufactured imports. Yes, we still face a deficit here, but it has been cut tremendously.

What’s behind this good news for U.S. manufacturers? There have been several factors at work, all moving domestic factories in a positive direction. First is a trend to a lower-valued dollar on the international stage. While this gets negative headlines, it does make our exports relatively less expensive in other countries and encourages foreign buying of those exports.

Of major importance has been an improvement in the relative competitiveness of U.S. manufacturers against their foreign counterparts. One positive from the recession is that it made our factories leaner and meaner, meaning they’re getting more output from their inputs. Many U.S. factories are now engaged in a major upgrading of their technology and equipment, which will give them a further competitive boost in years ahead.

A third factor is rising costs of manufacturing in some key foreign countries. China is seeing an uptick in their labor costs, and Japan is experiencing cost impacts from the tsunami last year and the resulting disruption to its energy market.

All these trends and statistics may sound good, but many of you may be asking, What about jobs? Have manufacturing jobs also been returning, and could we get back to a situation like 50 years ago, where a person could come out of high school and go into the factory for a good paycheck?

There are about 300,000 more manufacturing jobs in the nation today than there were at the bottom of the recession two years ago. That’s the good news. But the bad news is that there are still more than 200,000 fewer factory jobs now than before the recession hit four years ago. It’s unlikely we’ll ever return to the economy where almost one out of three jobs was in the factory.

Why? Simple: how we manufacture things has dramatically changed. Today’s factories use much more technology and modern equipment – and fewer workers – than in decades past. This is how our factories can churn out more output with fewer workers.

In fact, we’ve seen this movie before, in farming. Farm output today is three times greater than 60 years ago, yet the number of farmers and farm workers is down 80 percent over the same period. How could this happen? Farmers are using better technology, methods and equipment, and substituting these for physical labor. The same is happening in manufacturing.

Now, has the good news on manufacturing included North Carolina? Although we don’t yet have state data for 2011, the trends through 2010 give “yes” and “not yet” answers. The quantity of the state’s factory output fully rebounded from the recession by 2010, and indeed, set a record high in that year. However, the value of that output had not yet completely recovered in 2010, and manufacturing jobs at the end of 2011 were still under pre-recessionary levels.

So what’s the take-away from all these numbers and trends about manufacturing? Perhaps the most important conclusion is to recognize that the U.S. and North Carolina manufacturing sectors are not dead, but they are significantly different. We can produce more with fewer workers, and this trend will likely continue in the future.

But this also means you shouldn’t look for manufacturing to be the big employer it once was. Nonetheless, if the sector continues to produce more and increase sales, manufacturing will generate growth for both the national and state economies.

Given this, you will have to decide if the new manufacturing is as good as the old version.

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/

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