Driving the Economic Recovery

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The U.S. Census Bureau recently released data that suggests that sales are growing and that after-tax profits, and after-tax profit margins have risen to record levels in the fourth quarter of 2010. This confirms survey evidence from the Institute of Supply Management and from many other surveys done in regions across the country (See links below) that suggest that the manufacturing sector is recovering. Chart One suggests that sales are growing but remain below their levels prior to the recession. However, profits rose to $135.3 in Q4 2010 which is its highest level since Q3 2007 (see chart two). Another promising indicator shown in Chart Three is that after-tax profit margins for manufacturing companies also reached its highest level since 1999; coming in at 9.1 percent (see chart three below). These data and the charts suggest that manufacturing is expanding, profitable, and propelling the economic recovery.   Do you think this picture is indeed accurately portraying the real picture of manufacturing?  Are there other indicators that should be examined?

Empire State Manufacturing Survey
Manufacturing Survey – Federal Reserve Bank of Kansas City
Texas Manufacturing Outlook Survey
Manufacturing Surveys – The Federal Reserve Bank of Minneapolis
Manufacturing Survey – The Federal Reserve Bank of Richmond
March 2011 Business Outlook Survey – Federal Reserve Bank of Philadelphia

About Author

Ken Voytek

Mr. Voytek is the Manager of the Manufacturing Policy and Research group and the Chief Economist with the Manufacturing Extension Partnership (MEP) program in the National Institute of Standards and Technology (NIST). In his spare time, he collects baseball cards, reads obscure books and articles, and shares his bubbly personality with family, friends, and colleagues.

2 Comments

  1. Hi Ken:
    I recently looked at some Department of Labor data on the % of the U.S. workforce that is engaged in manufacturing. Manufacturing labor is down from about 28% of the workforce in 1960 to about 8.8% today. Do you have any data that indicates what part of this decline is due to productivity increases versus basic loss of manufacturing fraction in our GDP?

    • Ken Voytek

      Mark

      Thank you for your question. You raise an interesting and complicated issue. Of course, that may simply be a typical economist response.

      The reasons for the decline of manufacturing employment and manufacturing as share of GDP are complicated and reflect several factors. Chart One below summarizes the trends for several factors since 1987. I have not updated it recently but don’t think the basic story would change. You are correct in suggesting that the share of output and employment accounted for by manufacturing have declined but they have moved generally together. Productivity, particularly, labor productivity has risen rapidly and this reflects the conventional wisdom regarding why employment has fallen. However, work by Ono and Sullivan at the Federal Reserve Bank of Chicago and suggests that manufacturing firms are indeed increasing their use of temporary workers thus overstating the decline of manufacturing employment but also overstating productivity growth. Thus, I am not sure that productivity is as robust as it is reported since wages in manufacturing have relatively flat as well. In addition, it is also clear that the trend in relative prices for many manufactured goods has been on a different path than prices in general (see Chart two). Thus, when output for manufacturing is adjusted for price changes relative to other goods and services it appears that output as a share is lower. But, recent work by Susan Houseman at the W.E. Upjohn Institute for Employment Research suggests that output may also be overstated. Some of the decline in output and employment may also reflect trade trends.

      Thus, the story is difficult to summarize and characterize. I think that the simple (or singular) reasons for the decline of manufacturing are often incorrect, and a truer story reflects many factors – some technical, some economic, and some simply how we count things.

      Chart One: Stylized Picture of Manufacturing: Productivity Up; Employment & Share Down

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