Manufacturing trends in the United States Extracts from McKinsey Global Institute research Jan 2017 CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Recent trends: One-third of jobs lost last decade, followed by a modest rebound US manufacturing employment Million Manufacturing share of x total nonfarm employment 20 19 18 17 17 16 15 -5.7 14 13 12 +0.8 11 10 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 28 27 25 22 21 18 16 15 13 11 9 9 McKinsey & Company | 1 SOURCE: McKinsey Global Institute analysis
Job patterns similar by industry, but intensity — and causes — vary US manufacturing employment by industry group Index: 100 = January 1995 120 110 100 100 90 Regionally processed goods 84 (food, metals, plastics) 80 Heavy industrial goods 78 (machinery, cars, equipment) 71 All manufacturing 70 66 Resource-intensive goods 62 Tradable technology goods 60 (consumer electronics) 50 Labor-intensive tradables 47 (clothing, footwear) 40 1995 98 01 04 08 10 2017 McKinsey & Company | 2 SOURCE: McKinsey Global Institute analysis
Output growth collapsed during the two recessions of the 2000s Real value added US manufacturing value added and productivity growth 5-year moving average of annual growth, 1980 – 2010 Productivity 7 6 5 4 3 2 1 0 -1 -2 -3 1980 85 90 95 2000 05 2010 McKinsey & Company | 3 SOURCE: McKinsey Global Institute analysis
Trade deficit has widened in advanced industries, highlighting supply chain gaps Net US exports in knowledge-intensive manufacturing $ billion, real (2005) 50 Transport equipment (ex. auto) Precision instruments 0 Chemicals incl. pharmaceuticals -50 Machinery and equipment -100 Electronic devices -150 Motor vehicles and parts -200 -250 -300 -350 All advanced industries -400 1980 85 90 95 2000 05 10 2015 Overall trade balance as a share of GDP -0.3 -0.7 -0.4 -1.2 -2.1 -2.1 -1.5 -2.5 McKinsey & Company | 4 SOURCE: McKinsey Global Institute analysis
Manufacturing is core to a nation’s competitiveness Share of manufacturing in select economic indicators Global Emerging sample markets 16% 24% 12% Value added 14% 16% 9% Employment 37% 24% 30% Productivity growth 70% 73% 61% Exports 77% 78% 67% Private sector R&D McKinsey & Company | 5 SOURCE: McKinsey Global Institute analysis
Some priorities for US manufacturing ▪ Faster and broad-based productivity growth, Productivity especially among smaller firms with less exposure to export and investment growth ▪ Rising share of service activities that make Services up growing value share in the manufacturing value chain, both pre- and post-production ▪ Greater digital investments along the value Digitization chain to promote efficiency and broaden participation in productivity and exports Addressing ▪ Place-based strategies to reinvest in manufacturing communities, mitigate trade dislocation dislocation, older workers, declining mobility McKinsey & Company | 6 SOURCE: McKinsey Global Institute analysis
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