The Case of the Missing Jobs

By March 30, 2006Economy

Business is UpSince the start of this decade, manufacturing has shed 3 million jobs. During the recession, the manufacturing sector lost jobs at a steady pace for over 40 consecutive months. Yet the rest of the economy was adding jobs, having racked up 5 million new, non-manufacturing jobs since 2000. Many of you read those numbers and think U.S. manufacturing is surely washed up. After all, don’t job growth and output go hand in hand?

NAM Chief Economist David Huether tackled that question this week in a well-reasoned article in BusinessWeek

Making his debut in this prestigious magazine, Huether asked what could be going on when manufacturing employment, with 14.2 million workers, was at its lowest level in 50 years, while manufacturing output is at an all-time high?

In his Ideas/Outside Shot column in Business Week, Huether looks at the usual suspects you hear about in the press–outsourcing, rising trade deficit, alleged anemic recovery and notes that “none of these interrelated factors has influenced manufacturing employment nearly as much as has continuously strong productivity growth.” What??!! Productivity growth can’t be hammered on by politicians the way some of the other supposed reasons can. It’s like Dave Huether just pricked their rhetoric balloon with a hat pin. Boom!

But the truth is that productivity in manufacturing has taken a leap forward with the aid of computers, telecommunications changes and more efficient plant operations. Manufacturing productivity grew 72 percent faster in this recovery than it did in the previous four US economic recoveries going back nearly 40 years. Too bad Sebastian Mallaby, writing in the Washington Post on Monday, didn’t take the time to do his homework and alleged that manufacturing productivity wasn’t up to snuff. Huether blogged on that earlier this week so be sure and go back and check it out.

To be sure, manufacturing output has not increased at the same robust rate as it has in those same earlier recoveries– yet it has grown at a strong 13 percent since 2001. Huether points out that sluggish economic growth in Japan and Europe, stiff competition from low cost countries and uncertainties caused by 9/11, corporate scandals and the build up to the war in Iraq all took their toll on lowering post-recession output growth from U.S. plants.

Put that lower output together with sky-high productivity and you have the reasons for lack of US manufacturing job growth. Looking ahead, Huether says that productivity investments are not going to taper off because they are the success factor for US manufacturers doing business in this high-cost country. That leaves the open question the direction of global demand for US products. Will Japan and Europe get their markets in better shape to grow? Will we open currently closed markets with high tariffs? Will currencies be shaped by market forces so that US products will not be unfairly priced in places like China? The answers to many of these questions–and hence the future of manufacturing– lie with our policy-makers.