U.S. Manufacturing Near Record Level

Gross output of U.S. manufacturing industries — counting products produced for final use as well as those used as intermediate inputs — totaled $6.2 trillion in 2015, about 36 percent of U.S. gross domestic product, and nearly double the output of any of the other big sectors: professional and business services, government and real estate, reports Marketwatch’s Rex Nutting.

This is hardly a failed sector of the economy, as the Republican primary candidates maintain. “China may have become the leading manufacturing economy in the world in 2010,” says Nutting, “but the United States maintains a strong second-place standing. The value added by U.S. factories is more than $2 trillion a year, equal to the next three countries (Japan, Germany and South Korea) combined. U.S. manufacturing is still the envy of the world.”

Graph: Marketwatch

Then why so much bad mouthing of U.S. manufacturing? It’s maybe because fewer workers are needed to produce more, which has hurt the Midwest rust-belt states, and is probably why those blue collar workers have supported either Bernie or Donald in the Presidential primaries. Technology and new ways of organizing work have revolutionized the American factory since the Golden Age of the 1980s, says Nutting. Today, U.S. factories produce twice as much stuff as they did in 1984, but with one-third fewer workers.

The manufacturing component of the industrial production report posted a surprising 2 tenths gain in February last week, which came on top of January's stunning gain of 0.5 percent. Exports aren't specifically tracked in any of these reports but the implication is clear, says Econoday that this year's steep and early decline in the dollar, down 3.8 percent on the dollar index, is making our exports less expensive to our foreign customers.

So the ultra-strong dollar exchange rate with foreign currencies that allows Asian countries to outprice US on the cheaper consumer goods hasn’t hurt our manufacturing base that much. In fact, it’s been a great help to consumers, making imported goods that consumers love even cheaper.

Consumers aren’t necessarily spending their windfall from the cheaper imports and low inflation, however. Wages and salaries fell for the first time since last September in the Commerce Department’s just released income and outlays report, and their savings rates has risen to 5.4 percent. Why? We suppose anytime incomes fall, households tend to want to save more for that rainy day those pundits keep talking about.

 

Harlan Green © 2016

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