Assessing Manufacturing: Output and Labor

Transcription

1 Assessing : Output and Labor The Setup Making It In America Matters 212 NABE Industry Conference Cleveland, OH May 31, 212 William Strauss Senior Economist and Economic Advisor output peaked in December 27 and fell 2.4% over the following 18 months capacity utilization collapsed to the lowest rate in 7 years Industrial production manufacturing Index 27 = '91 '92 '93 '94 '9 '96 '97 '98 '99 ' '1 '2 '3 '4 ' '6 '7 '8 '9 '1 '11 '12 Capacity utilization manufacturing '91 '92 '93 '94 '9 '96 '97 '98 '99 ' '1 '2 '3 '4 ' '6 '7 '8 '9 '1 '11 '12 Job declines in the manufacturing sector were significant, with over 2. million jobs lost over that same period employment Is the U.S. Losing Its Base? 1 Percent change from a year earlier 1 Quarterly change (saar) 2 199'91'92'93'94'9'96'97'98'99''1'2'3'4''6'7'8'9'1'11'12 Assessing : Output and Labor 1

2 employment as a share of national employment has been declining for over years The number of jobs in manufacturing has been relatively stable over this period, edging lower on average by -.3% per year since 1947 employment as a share of total nonfarm employment ' '6 '7 '8 '9 ' '1 employment millions ' '6 '7 '8 '9 ' '1 Not to make a mountain out of a molehill, but manufacturing employment was increasing up until 1979 and has been moving lower over the past 3 years However, service sector employment has grown more than fourfold over this period, averaging growth of 2.3% per year since 1947 employment millions % 16 1.% ' '6 '7 '8 '9 ' '1 Employment millions 12 1 service manufacturing 194 ' '6 '7 '8 '9 ' '1 While manufacturing employment growth has been edging lower over the past 63 years, manufacturing output increased by 3.1% per year This translated into an almost 6 increase in manufacturing output over this time period output Index 27=1 12 Index 27=1 12 millions output left scale ' '6 '7 '8 '9 ' '1 2 employment right scale 194 ' '6 '7 '8 '9 ' '1 2 Assessing : Output and Labor 2

3 The increase in output can be attributed to strong productivity growth experienced by the manufacturing sector What took 1, workers to produce in 19 takes 17 workers today productivity Index 19= '6 '7 '8 '9 ' '1 sector: Number of workers needed to do the work of 1, workers in 19 Number of workers 1, 1, productivity growing faster over the past 4 years The divergence in productivity appears to have occurred around the mid-197s Productivity Average annual change Productivity Index 197= Nonfarm business manufacturing nonfarm business 19s 196s 197s 198s 199s 2s '6 '7 '8 '9 ' '1 This divergence is especially apparent in durable manufacturing Strong productivity growth had allowed the manufacturing sector to grow faster than the overall economy Productivity Index 197= durable manufacturing nondurable manufacturing 19 '6 '7 '8 '9 ' '1 Output Index 1947=1 9 industrial production manufacturing real GDP '2 '7 '62 '67 '72 '77 '82 '87 '92 '97 '2 '7 Assessing : Output and Labor 3

4 However, lower relative prices in the manufacturing sector has lead to manufacturing comprising a smaller share of GDP over time share of GDP 3 The Sector Continues to Re-invent Itself '2 '7 '62 '67 '72 '77 '82 '87 '92 '97 '2 '7 Over the last twenty years the fastest growing sector, not surprisingly, has been computer and electronic components There has been a large number of industrial sectors that have risen and fallen over the past twenty years Industrial output: change (annual rate) Durable Goods WoodProducts Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products Miscellaneous Durable Goods Nondurable Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products Other Industrial output: change (annual rate) Durable Goods WoodProducts Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products Miscellaneous Durable Goods Nondurable Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products Other The collapse in manufacturing experienced in is closely linked with the economic recession Declines in manufacturing output were broad-based during the Great Recession especially in vehicle and primary metals manufacturing Industrial output: December 27 June 29 change Durable Goods WoodProducts Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products Miscellaneous Durable Goods Nondurable Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products Other Assessing : Output and Labor 4

5 The recovery has also been broad-based with motor vehicles and primary metals manufacturing leading the way workers have suffered steep employment declines over the Industrial output: June 29 April 212 change Durable Goods WoodProducts Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products Miscellaneous Durable Goods Nondurable Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products Other employment trough = But the overall economy s employment growth also struggled When changes in nonfarm employment are considered, the most recent manufacturing employment downturn is not unprecedented Total nonfarm employees trough = employment share '2 '7 '62 '67 '72 '77 '82 '87 '92 '97 '2 '7 '12 The financial crisis and its aftermath has hampered the current economic expansion The recovery in manufacturing output is in-line with past industrial recoveries Real GDP trough = Industrial production manufacturing trough = Assessing : Output and Labor

6 Productivity in the overall economy has grown at a rate near the low-end of previous expansions However, productivity within the manufacturing sector has grown at a much faster pace Productivity nonfarm business trough = Productivity manufacturing trough = employment losses have occurred across numerous countries among 2 big economies, 22 million jobs were lost Percent change in manufacturing employment: Is the U.S. positioned to continue its strong productivity gains? U.S. maintaining its commitment to research and development The vast majority of U.S. research and development is being privately funded Research and developmentexpenditures as a share of GDP Share of research and developmentthat is privately funded '8 '63 '68 '73 '78 '83 '88 '93 '98 '3 ' '8 '63 '68 '73 '78 '83 '88 '93 '98 '3 '8 Assessing : Output and Labor 6

7 We are producing more in our farm sector than at any time in our history Lessons from the farm sector Real gross value added: farm business Billions of chained 2 dollars '7 '67 '77 '87 '97 '7 And we are accomplished this remarkable feat with less than 2.% of our employment devoted to farming Share of total employment 9 8 services manufacturing 2 1 agriculture The Current Expansion Beginning in July 29, manufacturing output in the United States has been increasing at a 6.% annualized rate and has recovered 74.8% of its drop in output Industrial production manufacturing Index 27 = '91 '92 '93 '94 '9 '96 '97 '98 '99 ' '1 '2 '3 '4 ' '6 '7 '8 '9 '1 '11 '12 capacity utilization has been rising since June 29 Capacity utilization manufacturing '91 '92 '93 '94 '9 '96 '97 '98 '99 ' '1 '2 '3 '4 ' '6 '7 '8 '9 '1 '11 '12 Assessing : Output and Labor 7

8 And while manufacturing jobs have been rising, they have only recovered 21.1% of the jobs lost during the downturn employment 1 Percent change from a year earlier 1 Quarterly change (saar) 2 199'91'92'93'94'9'96'97'98'99''1'2'3'4''6'7'8'9'1'11'12 Summary output is in the process of recovering its losses The success of manufacturing has been driven by productivity employment has shown little change over the past 7 years with a steady decline over the past 3 years The most recent decline in manufacturing was cyclical, not structural Profits in manufacturing have outperformed profits for the rest of the nation The trends that have dominated manufacturing for the past 7 years are suggestive of the future for U.S. manufacturing: ever increasing output with employment representing a smaller share of total employment Chicago Fed Letter - June 23 Assessing : Output and Labor 8