Manufacturing Outpaces Overall GDP in 2005

By April 27, 2006Economy

Business is UpManufacturing outpaced the overall economy in 2005, though it experienced slower growth last year along with most sectors. Today, the Commerce Department released its annual report on GDP by Industry for 2005 which showed that manufacturing GDP increased a solid 4 percent last year in inflation-adjusted terms, or half a percentage point faster than the 3.5 percent pace of the overall economy.

Last year’s 3.5 percent rise in overall GDP was a deceleration from the 4.2 percent growth rate in 2004. While only two sectors (agriculture and mining) actually showed negative GDP growth last year, another seven experienced a deceleration in the pace of growth, including manufacturing, which increased by a stronger 4.8 percent in 2004. Only five sectors showed an acceleration in GDP growth last year (including education and health care, finance, construction and arts entertainment and recreation.)

Within manufacturing, most of the growth was in durable goods sectors, where GDP increased by 5.7 percent in 2005. Nondurable manufacturing grew a much slower 1.6 percent.

At $1.5 trillion, manufacturing made up 12 percent of the economy last year, virtually the same as 2004. This is the first time in 7 years that there was not significant erosion in manufacturing’s share of the economy. One of the reasons that manufacturing stabilized as a share of GDP last year is that for the first time in a decade, inflation in the manufactured sector did not decline in 2005, and instead rose modestly by 1.4 percent. In past years, deflation in manufacturing, along with sluggish growth surrounding the 2001 recession combined to reduce manufacturing’s share of GDP.

As in every year since 1987, manufacturing’s share of GDP was larger than every other private sector except FIRE (Finance, Insurance and Real Estate) in 2005.