U.S. Manufacturing Remains World’s Largest

By March 14, 2011Economy

U.S. manufacturing remains the world’s largest manufacturer, despite an inaccurate report in today’s Financial Times that China has passed the United States. American manufacturing, in fact, is so large that if it were a self-standing economy, it would be the eighth largest in the world.

There are a number of errors in the data provided to the Financial Times by a private sector consultant. First, the report did not measure the physical quantity or volume of manufacturing, but rather measured current dollar output which is impractical due to price changes and exchange rate changes. Real Gross Domestic Product (GDP), and its manufacturing component, Real Manufacturing Value-Added, are the correct ways to measure economic output, because they are adjusted to remove the effect of price and exchange rate changes and measure real output.

The United Nations Statistics Division compiles global data on manufacturing value-added, and its most recent data shows the United States continues to lead, with close to 21 percent of all global manufacturing output in terms of constant dollars (real manufacturing value-added in 2009). China is the second largest, with about 15 percent of global manufacturing. No official data are available for 2010 yet, but given the gap between the top two manufacturers, China will not have surpassed the United States in 2010.

The second problem is that the consultant did not rely on official data in making its estimates. Rather than use the United Nations official data which is agreed upon by most economists as reliable, the consultant appears to have made its own assumptions. Using the consultant’s growth assumptions for China and the United States in 2010, and applying them to the official 2009 data shows that even in current dollars the United States remained the worlds’ largest manufacturer in 2010.

The U.S. Department of Commerce, which compiles the manufacturing value-added data, says that preliminary 2010 estimates will not be available until next month. In an effort to clarify the erroneous information provided to the Financial Times, the National Association of Manufacturers shared the data that shows the U.S. remains the world’s largest manufacturer.

Frank Vargo is the NAM vice president of international economic affairs.

Join the discussion 8 Comments

  • matthew topka says:

    the u.s. produces more goods than any other country in the world!!!!!!!!!!!!!!!!!!!to all the idiots out there stop saying everything is madein china!!!!!!!!!!!!!!!!!!
    IN FACT _________________________________________________________________________________________
    THE U.S. PRODUCES MORE GOODS THEN AT ANY OTHER TIME IN OUR HISTORY!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!YES THIS IS A FACT

  • matthew topka says:

    TO ALL THE PEOPLE IN THE U.S.– STOP ‘SAYING everything is made in china!!!!!!!!!!!!!!!!!!!!!!!!the u.s. produces more goods then any other country in the world!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!that includes mars and themoon!!!the u.s. produces more vehicles, then in 1950. in fact, the united states of america produces more goods as of 0ct. 19 2012 then ANY OTHER TIME IN THE HISTORY OF OUR COUNTRY. OUR PRODUCTIVITY IS SO GREAT THAT WE DON’T NEED AS MANY PEOPLE TO PRODUCE THIS MANY GOODS. SHOW ME ANOTHER COUNTRY THAT CAN MAKE A NUCLEAR SUPER AIRCRAFT CARRIER12OFTHE THEM, A FLEET OF SPACE SHUTTLES, ELECTRIC POWER GENERATERS, HEAVY DIESAL POWER TRAIN LOCOMOTIVES,CATAPILLER HEAVY MACHINERY, SATELIGHTS,CADDILAC CARS,AND THE SOCKS THAT I’M WEARING RIGHT NOW!!!!!!!!!

  • Noam Chompsky describes the era after World War II as the American Economic Peak, from which it has been a decline ever since. 50 % of the worlds manufacturing, America makes, and the world takes.*
    Certainly, it was aided by the war time destruction, newly minted architechture, and infrastructre and people were moving into houses, and jobs to be had, readily, coming out of high school…

    Frankly, that was too high; but I agree 25% was collosal, and I think an achievable goal.

    What is disturbing to me, is how much of Chinas economy is fueled by American dollars.
    Is it really cheaper to get that much work done over seas? Including fuel costs?

    From an energy accounting perspective, this is IMPOSSIBLE.

    Yet somehow money accounting and exchange rates make this a very profitable, and wide spread practice.

    This does not take into account the cost of not buying locally made goods has on your community. Less jobs around, means more un happy people, Less possibility for you to earn locally, or be the reciepient of gifts, and your children opportunity to spend time with gifted people who have the cash to do what they feel they are best at.

    The problem is the focus of the capital force is not well focused on the correct technologies, and the mentality is to increase wealth by increasing consumption..and waste; a better definiton of wealth finds the best value is in reusable parts, endlessly renewable or converted to maximum use**

    The rest of the world will follow our lead, and American manufacturing will surge, (though not to 50 %)
    We will be manufacturing leaders, but a lower percentage of new goods. We will reduce to near zero disposable goods.A larger part of our economy will be recycling, swapping, and customization, as we build to last, and retrievable elements.

    * a true spin on the slogan on the Trenton bridge

  • peter marsh says:

    I’ve just seen Frank Vargo’s comments on the Financial Times story which said that China was now the biggest manufacturer in the world, overtaking the US. I am the author of the FT article & I spoke to Frank before the article was published. I hope you will allow me to make a few comments.

    Frank says there are a number of errors in the data which I used. He does not mention this but the data came from IHS Gobal Insight which is an economics consultancy with a good reputation for providing robust data.

    I’ve known the people at this consultancy for some time and based a number of stories on figures they have provided. I have not heard from others in the past saying the data they use are inaccurate or suffer from methodological flaws.

    Frank also says it is not a good idea to use current year data denominated in dollars when looking at world GDP or its constituents .Of course it is possible to count world or national GDP, and manufacturing value-added output ,in any currency unit , based on the currency values of any year.

    But the convention is that when statisticians or economists count up world GDP in a specific year & divide this between the different countries, then they normally use the currency values of that same year, with the values for different countries translated into dollars at current market rates.

    It’s possible to see this simply by consulting World Bank or UN reports. This is how such data are normally measured when we are interested in taking a snapshot of GDP (or the constituents of this) in a single year. If we want to consider the year-on-year change in such values then we use real, inflation adjusted values. But this was not what this specific article was about.

    Frank also says the consultancy did not use “official” data. What IHS did was to take national accounts data from the different countries and then subject them to the same analytical treatment as the UN or other “official” bodies would do. The consultancy did this in a more timely fashion, however, and got their data out into the public domain (at least via the FT) rather earlier than the UN statisticians.

    His contention is that everyone should suspend judgment on this matter until the UN publishes its data for 2010. That should happen in a few months. I agree it will be interesting to see the UN version of the same data.

    However the UN system suffers from a problem that the UN statisticians do not seem able to distinguish between industrial output and manufacturing output for China. (Industrial output is manufacturing plus other forms of output including construction and energy.)

    So the UN data for China do not give a clear view for China manufacturing output. Therefore there is no point in waiting for the UN data because they will not give the answers of interest as to how big Chinese manufacturing output is compared to that of other countries.

    By the way, the statisticians at the World Bank do this job rather better.They are capable of differentiating between industrial and manufacturing output for China. But again the World Bank data for 2010 will not be available for some time.

    Of course all data are subject to revision. So the “final “ data for 2010 may show some differences compared to the data that are in the IHS figures. But for the time being the IHS numbers are the best we have.

    If for some reason later data are revised to show that the US is actually still no 1 in manufacturing in the world, then almost certainly it will fall behind China very soon. That is logical when you consider China has more than 3 times more people than the US with technology and production standards rapidly improving.

    Rather than dismiss the IHS data as wrong , Frank and the NAM would do better (I think) to address the wider issues at stake here.One of the interesting aspects to the discussion is that China and the US create roughly equal amounts of manufacturing goods (with China just ahead, according to the IHS numbers) but with the US employing a workforce about 1/10 the size of that in China.

    The productivity advantage is worth highlighting even if it turns out to be true (as the best available data would now suggest) that the US has indeed lost its 110-year-old lead on the rest of the world in this particular part of the world economy.

    For anyone interested there is a fuller version of the story on ft.com which gives the full league table of the top 15 countries in manufacturing in 2010—see http://blogs.ft.com/beyond-brics/2011/03/14/emerging-economies-flex-manufacturing-muscle

    Peter Marsh , FT manufacturing editor. tel 44 20 7873 3436 =peter.marsh@ft.com

  • jxie says:

    FWIW, in 2010 China’s mining, manufacturing, and utilities was at 16 trillion yuans. China does break down to manufacturing value-added in its stats, but it takes a while to release that. The latest available data is for 2007.

    “Constant dollar terms” in your context really means “constant 2005 dollar terms”, right? If I understand it correctly, in 2005 $1 exchanged for 8.28 yuan, and that is the base for the “constant 2005 dollar terms” calculation. Moreoever, you need to factor in that the accumulative inflation rate from 2005 to 2010 in China is a bit higher than that in the US.

    So, $1 in 2010, in “constant 2005 dollar terms”, actually is valued at somewhere between 8.4 and 8.5 yuan in 2010. That is about 28% higher than the real exchange rate, based on which many consider yuan is already undervalued.

  • Martian150 says:

    Quoting Mr. Frank Vargo:

    “Please revisit the data and look at row 690 as well as 691. There you will see something interesting — they are identical, even though row 690 is ISIC C-E (Mining, Manufacturing and Utilities) and row 691 is purported to be manufacturing. China does not report manufacturing separately from Mining, Manufacturing, and Utilities, for reasons I have not been able to discover. This is particularly curious, since the World Bank does differentiate these.”

    ———-

    I am surprised to discover that row 690 is identical to row 691. Since you have raised reasonable doubt, I am withdrawing my challenge to your claim that “U.S. manufacturing remains the world’s largest manufacturer.”

    Thank you for the insight.

  • Frank Vargo says:

    Actually, no. The data do not show China was ahead since 2008.

    I can understand why you think the data say that, but that is not so. Please revisit the data and look at row 690 as well as 691. There you will see something interesting — they are identical, even though row 690 is ISIC C-E (Mining, Manufacturing and Utilities) and row 691 is purported to be manufacturing. China does not report manufacturing separately from Mining, Manufacturing, and Utilities, for reasons I have not been able to discover. This is particularly curious, since the World Bank does differentiate these.

    So, if you go to rows 3470 and 3471, you will see the U.S. is listed as $2,334 for Mining Manufacturing and Utilities and $1779 for manufacturing only. Since China does not list manufacturing separately, I think you will agree it is not accurate to compare China’s Mining Manufacturing, and Utilities with America’s manufacturing.

    If you compare U.S. mining, manufacturing, and utilities with China’s you will see the U.S. was $2.334 trillion in 2009 compared with China’s $2.05 trillion.

    But the more fundamental point is the comparisons need to be in constant dollar terms, to measure actual quantities of manufacturing, not price and exchange rate changes.

    But even using the figures you cited, the U.S. is still ahead of China. I hope you find this helpful.

  • Martian150 says:

    According to the U.N., China has been the world’s largest manufacturer since 2008.

    To verify for yourself that China has been the world’s largest manufacturer since 2008, click on the link to U.N. statistics:

    http://unstats.un.org/unsd/snaama/dnllist.asp

    Under the category of “GDP and its breakdown at current prices in US Dollars,” select “All countries for all years – sorted alphabetically.”

    After opening the spreadsheet, look at cell #691 for “China (manufacturing).” Look at the two right-most columns on the spreadsheet. It will show that China’s manufacturing sector produced $1.87 trillion dollars in 2008 and $2.05 trillion in 2009.

    In comparison, look at cell #3471 for “United States (manufacturing),” the U.N. data show that U.S. manufacturing accounted for $1.79 trillion dollars in 2008 and $1.78 trillion in 2009.

    The U.N. data conclusively show that China has been the world’s largest manufacturer since 2008.

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