Economic Recovery: State of Manufacturing

Transcription

1 Economic Recovery: State of The Setup Getting the Euro to Work Chicago, IL July 2, 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 Index 27 = '91 '92 '93 '94 '9 '96 '97 '98 '99 ' '1 '2 '3 '4 ' '6 '7 '8 '9 '1 '11 '12 Capacity utilization '91 '92 '93 '94 '9 '96 '97 '98 '99 ' '1 '2 '3 '4 ' '6 '7 '8 '9 '1 '11 '12 Job declines in the 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 Economic Recovery: State of 1

2 employment as a share of national employment has been declining for over years The number of jobs in 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 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 ' '6 '7 '8 '9 ' '1 While employment growth has been edging lower over the past 63 years, output increased by 3.1% per year This translated into an almost 6 increase in 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 Economic Recovery: State of 2

3 The increase in output can be attributed to strong productivity growth experienced by the 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 nonfarm business 19s 196s 197s 198s 199s 2s '6 '7 '8 '9 ' '1 This divergence is especially apparent in durable Strong productivity growth had allowed the sector to grow faster than the overall economy Productivity Index 197= durable nondurable 19 '6 '7 '8 '9 ' '1 Output Index 1947=1 9 industrial production real GDP '2 '7 '62 '67 '72 '77 '82 '87 '92 '97 '2 '7 Economic Recovery: State of 3

4 However, lower relative prices in the sector has lead to comprising a smaller share of GDP over time share of GDP 3 How profitable is? '2 '7 '62 '67 '72 '77 '82 '87 '92 '97 '2 '7 While more cyclical, profits in have out-performed returns in nonfinancial corporate businesses Profits as a of value added 3 The Sector Continues to Re-invent Itself nonfinancial corporate business 19 ' '6 '6 '7 '7 '8 '8 '9 '9 ' ' '1 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 Economic Recovery: State of 4

5 The collapse in experienced in is closely linked with the economic recession Declines in output were broad-based during the Great Recession especially in vehicle and primary metals 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 The recovery has also been broad-based with motor vehicles and primary metals leading the way workers have suffered steep employment declines over the Industrial output: June 29 June 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 employment downturn is not unprecedented Total nonfarm employees trough = employment share '2 '7 '62 '67 '72 '77 '82 '87 '92 '97 '2 '7 '12 Economic Recovery: State of

6 The financial crisis and its aftermath has hampered the current economic expansion The recovery in output is in-line with past industrial recoveries Real GDP trough = Industrial production trough = Productivity in the overall economy has grown at a rate near the low-end of previous expansions However, productivity within the sector has grown at a much faster pace Productivity nonfarm business trough = Productivity trough = employment losses have occurred across numerous countries among 2 big economies, 22 million jobs were lost Percent change in employment: Is the U.S. positioned to continue its strong productivity gains? Economic Recovery: State of 6

7 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 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 agriculture The Current Expansion Economic Recovery: State of 7

8 Beginning in July 29, output in the United States has been increasing at a 6.7% annualized rate and has recovered 73.8% of its drop in output Industrial production 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 '91 '92 '93 '94 '9 '96 '97 '98 '99 ' '1 '2 '3 '4 ' '6 '7 '8 '9 '1 '11 '12 And while jobs have been rising, they have only recovered 2.3% 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 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 was cyclical, not structural Profits in have outperformed profits for the rest of the nation The trends that have dominated for the past 7 years are suggestive of the future for U.S. : ever increasing output with employment representing a smaller share of total employment Chicago Fed Letter - June 23 Economic Recovery: State of 8