The Disappearance of Manufacturing? Purdue University William - - PDF document

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The Disappearance of Manufacturing? Purdue University William - - PDF document

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William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago The Disappearance of Manufacturing? Purdue University William Strauss West Lafayette, Indiana Senior Economist April 1, 2004 and Economic Advisor

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SLIDE 1

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 1

The Disappearance of Manufacturing?

William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Purdue University West Lafayette, Indiana April 1, 2004

Fact? The United States is losing its manufacturing base

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SLIDE 2

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 2

Manufacturing employment as a share

  • f national employment has been

declining for over 50 years

5 10 15 20 25 30 35 40 1940 '50 '60 '70 '80 '90 '00

Manufacturing share of total nonfarm employment

percent

The number of jobs in manufacturing has been relatively stable over this period, averaging 0.1% growth per year since 1947

5 10 15 20 1940 '50 '60 '70 '80 '90 '00

Manufacturing employment

millions

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SLIDE 3

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 3

The service sector has grown by more than fivefold over this period, averaging 2.5% growth per year since 1947

20 40 60 80 100 120 1940 '50 '60 '70 '80 '90 '00

Nonfarm employment

millions Manufacturing Service

This has decreased manufacturing’s share of total jobs and increased the service sector’s share

10 20 30 40 50 60 70 80 90 1940 '50 '60 '70 '80 '90 '00

Share of total nonfarm employment

percent Manufacturing Service

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SLIDE 4

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 4

While manufacturing employment was flat over the past 50 years, manufacturing output increased by 3.7% per year

20 40 60 80 100 120 1947 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02

Manufacturing output

Index (1997=100)

This translated into nearly a 600 percent increase over this time period

20 40 60 80 100 120 1940 '50 '60 '70 '80 '90 '00 20 40 60 80 100 120

Manufacturing

Index (1997=100) Millions of w orkers Output -left scale Employment - right scale

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SLIDE 5

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 5

The increase in output can be attributed to strong productivity growth experienced by the manufacturing sector

50 100 150 200 250 300 350 400 450 500 1950 '60 '70 '80 '90 '00

Productivity

Index (1950=100) Manufacturing

Over the past 50 years productivity in the manufacturing sector increased 2.9% per year, more than the 2.3% for the nonfarm business sector

50 100 150 200 250 300 350 400 450 500 1950 '60 '70 '80 '90 '00

Productivity

Index (1950=100) Manufacturing 50 100 150 200 250 300 350 400 450 500 1950 '60 '70 '80 '90 '00

Productivity

Index (1950=100) Nonfarm business Manufacturing

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SLIDE 6

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 6

Productivity in the durable manufacturing sector has been stronger than in nondurable manufacturing

50 100 150 200 250 300 350 400 450 500 550 1950 '60 '70 '80 '90 '00

Productivity

Index (1950=100) Nondurable manufacturing Durable manufacturing

The divergence in productivity appears to occur around the mid-70s

50 100 150 200 250 1950 '60 '70 '80 '90 '00

Productivity

Index (1975=100) Nonfarm business Manufacturing

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SLIDE 7

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 7

This is especially apparent in durable manufacturing

50 100 150 200 250 300 1950 '60 '70 '80 '90 '00

Productivity

Index (1975=100) Nondurable manufacturing Durable manufacturing

Strong productivity growth has allowed the manufacturing sector of the U.S. economy to grow faster than the overall economy

100 200 300 400 500 600 700 800 1947 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02

Output

Index (1947=100) Real GDP Industrial Production Manufacturing

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SLIDE 8

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 8

Due to strong productivity growth, price increases in the manufacturing sector have been lower than overall price increases

  • 2
  • 1

1 2 3 4 5 6 1987 '92 '97 '02

Inflation

Percent Consumer price index Manufacturing

The lower relative prices in the manufacturing sector has lead to manufacturing comprising a smaller share of GDP over time

5 10 15 20 25 30 35 1947 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02

GDP Share

Percent Services Manufacturing FIRE

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William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 9

The current doldrums in manufacturing employment are closely linked with the most recent economic recession

Manufacturing workers have suffered steep employment declines over the past few years

85 90 95 100 105 110 115 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 10 11 12

Manufacturing Production Workers

Trough = 100 Upper and low er bounds around GDP troughs Current cycle

Quarters away from trough of real GDP

Late expansion and recession Recovery or expansion

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William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 10

But so has everyone else

96 98 100 102 104 106 108 110 112 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 10 11 12

Total Nonfarm Employment

Trough = 100 Upper and low er bounds around GDP troughs Current cycle

Quarters away from trough of real GDP Late expansion and recession Recovery and expansion

The economy has been hit hard by a number of negative economic shocks over the past few years

  • The equity market collapse that began in early 2000
  • Soaring energy prices in late 2000 and again in late 2002
  • The September 11, 2001 attack on the United States
  • The corporate governance scandals that started in late 2001
  • The geopolitical uncertainties regarding Iraq that began

in the summer of 2002

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SLIDE 11

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 11

These shocks hampered the current economic expansion

95 100 105 110 115 120 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 10 11 12

Real Gross Domestic Product

Trough = 100 Upper and low er bounds around GDP troughs Current cycle

Quarters away from trough of real GDP Late expansion and recession Recovery or expansion

The loss of manufacturing employment is consistent with the declines in overall manufacturing production

95 100 105 110 115 120 125 130 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 10 11 12

Industrial Production

Trough = 100 Upper and low er bounds around GDP trough Current cycle

Quarters away from trough of real GDP Late expansion and recession Recovery or expansion

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William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 12

Productivity in the overall economy has grown at a faster rate than during any previous expansion – this is a double edged sword

92 96 100 104 108 112 116 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 10 11 12

Productivity - Nonfarm Business Sector

Trough = 100 Upper and low er bounds around GDP troughs Current cycle

Quarters away from trough of real GDP Late expansion and recession Recovery or expansion

Productivity within the manufacturing sector has also been growing at a faster rate than during any previous expansion

92 96 100 104 108 112 116 8 7 6 5 4 3 2 1 1 2 3 4 5 6 7 8 9 10 11 12

Productivity - Manufacturing Sector

Trough = 100 Upper and low er bounds around GDP troughs Current cycle

Quarters away from trough of real GDP Late expansion and recession Recovery or expansion

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William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 13

Recent manufacturing employment losses have

  • ccurred across a number of countries –

among 20 big economies, 22 million jobs have been lost

B r a z i l J a p a n C h i n a U n i t e d K i n g d

  • m

R u s s i a S

  • u

t h K

  • r

e a U n i t e d S t a t e s S w e d e n G e r m a n y C a n a d a S p a i n P h i l i p p i n e s T a i w a n M e x i c

  • M

a l y a s i a N e t h e r l a n d s A u s t r a i l i a I n d i a I t a l y F r a n c e

  • 25
  • 20
  • 15
  • 10
  • 5

5 10 15 20 25 30

Percent change in manufacturing employment from 1995 to 2002

percent

Fact? Manufacturing jobs are higher paying jobs, and if we lose these jobs, we will become a nation of hamburger flippers

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SLIDE 14

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 14

Wages are higher in the manufacturing sector

100 200 300 400 500 600 700 1965 '70 '75 '80 '85 '90 '95 '00

Average Weekly Wage

Dollars Services Manufacturing

However, over the last fifteen years, service sector wages have been growing at a faster rate – 2.9% per year for manufacturing vs. 3.4% per year for services

2 4 6 8 10 12 1965 '70 '75 '80 '85 '90 '95 '00

Growth in Average Weekly Wages

Percent Services Manufacturing

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SLIDE 15

William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 15

Union membership has played a major role in manufacturing having higher relative wages and consequently encouraging the substitution away from labor to capital

12 14 16 18 20 22 24 26 1968 '70 '75 '80 '85 '90 '95 '00

Union employment as a share of labor force

Percent

Since 1980, employment cost increases in the service sector has exceeded the manufacturing sector

80 100 120 140 160 180 200 220 240 260 1980 '85 '90 '95 '00

Employment Cost Index

Index (1980=100) Manufacturing Service

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William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 16

Standards of living in the United States have never been higher

$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 1960 '70 '80 '90 '00

Real disposable personal income - per capita

2000 chained dollars

Lessons from the farm sector

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William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 17

We are producing more in our farm sector than at anytime in our history

10 20 30 40 50 60 70 80 1947 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02

Real Gross Domestic Farm Business Product

Billions of 2000 chained dollars

And we are accomplished this remarkable feat with just 2.4% of our employment devoted to farming

10 20 30 40 50 60 70 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Share of Total Employment

Percent Agriculture Manufacturing Services

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William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Assessment 18

Chicago Fed Letter - June 2003 www.chicagofed.org

Questions