Any regular reader of this column knows that I have a passion for manufacturing, and any regular reader of this column probably shares that passion with me. For three decades now I have been observing and writing about manufacturing processes and what manufacturing means to an economy. For one such as me, watching what has happened to manufacturing in this country during the past 30 years has been a painful experience.
Let us consider the numbers during the most recent decade (2001 to 2011). The U.S. gross domestic product (GDP) grew from $10.3 billion to $15.1 billion in that period, representing an average annual growth rate of 3.9%. If we eliminate the effects of inflation, we can determine that real GDP growth averaged 1.6% per year for the decade ending in 2011.
This isn’t too bad. If you compare the manufacturing component of GDP, however, a much sadder story emerges. In 2001, for every thousand dollars of GDP, manufacturing accounted for $364 of it, or 36.4%. In 2011, this percentage fell to 34.4% of GDP – a total reduction of 5.5% in just the past decade alone. If we eliminate the effects of currency inflation – that is, see what’s happening in real terms – the picture gets worse. Using constant dollars, it can be calculated that manufacturing’s role relative to GDP has fallen more than 18% in 10 years.
For those of us with a particular interest in the manufacture of durable goods, the picture gets worse yet. Again in real terms, the production of durable goods between 2001 and 2011 fell from 19.3 to 15.6% of GDP. This is about a 19% drop … in just one decade!
To keep all of this in perspective, let’s remember that it is possible for a sector (manufacturing) to grow while simultaneously losing share of a broader economic indicator like GDP. This is exactly what happened between 2001 and 2006, when manufacturing’s share of GDP (measured in constant dollars) fell from 37.5 to 35.1% yet still sustained real growth at a 1.4% annual rate.
Then, in the face of government bailouts for major manufacturing enterprises, broad economic recession and high and uncertain energy prices, the situation gets even worse. Between 2006 and 2011, not only did manufacturing lose share to the broad GDP indicator in the U.S., but it actually declined in real terms as well. In the past five years, real “growth” in manufacturing has been negative. And, yes, by negative growth we mean contraction. For the last five years, manufacturing in the U.S. has contracted 2.1% annually.
The economic pundits say that growth in manufacturing will resume again, having passed through this rough patch of bailouts and recessions. Even so, manufacturing will still lose ground to the broader economy as service industries continue to displace manufacturing in the economic mix of the U.S. To be sure, the service sector is important, but I can think of only one service industry that doesn’t require manufactured goods to perform.
If you are a fervent proponent of manufacturing, almost none of the aforementioned is good news to you. For a nation that built itself up to greatness on the strength of its manufacturing might, these figures are more than just sad.
They are alarming.