Stop Trying to Make the 'Manufacturing Renaissance' Happen

The bad news (and a little good news) about the manufacturing renaissance, in four charts

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Today President Barack Obama is touting the formation of two new manufacturing hubs, as part of a pledge made in his 2013 State of the Union address. The administration has been beating the manufacturing drum for years, talking of a “renaissance”  in that industry. But prospects of the industry attaining anything approaching its former glory look slim. 

[READ: The 6 Most Overhyped Business Stories of 2013]

An  IMF working paper released earlier this month finds that, while manufacturing could see a boost in coming years, it’s “unlikely for manufacturing to become a main engine of growth in the United States.”

One piece of evidence is that manufacturing has fallen so far in terms of it share of GDP, from around 20 percent back in 1980 to just over 12 percent today.

Still, manufacturing has rebounded (along with the rest of the economy) since the recession. The above chart takes a broad view, and it can be easy to ignore that little tick up in manufacturing after the recession. Manufacturing has rebounded from 11.9 percent of GDP in 2009 to 12.5 percent of GDP in 2012, according to the Commerce Department.

Indeed, by one measure this rebound has been impressive. The industry’s value added has bounced back far more strongly than it did after recessions in the 1980s, 1990s, and early 2000s (though the authors note that durable-goods manufacturing has led this rebound, while non-durable goods manufacturing has faltered).

Even if manufacturing is rebounding, it’s important to know that in the sense that a manufacturing renaissance matters to many Americans -- that is, jobs -- the rebirth isn’t exactly happening. Indeed, manufacturing has posted sizable declines in recent years, despite broader employment fluctuations.

The below chart puts manufacturing and total employment on two separate axes, but it illuminates one key fact: manufacturing has been flat or declining since 2000, while total employment has jumped and dipped with broader economic trends.

The trend is not new. Since its peak in the late 1970s, manufacturing has posted a net loss of more than 9 million jobs, with some particularly steep drops during the last two recessions. However, one can’t judge the health of an industry by employment alone. Labor’s importance in manufacturing has fallen off as automation has grown more prevalent. Compared to many other industrialized nations, the U.S. saw fantastic gains in output per labor hour in manufacturing from 2002 to 2012.

As the Congressional Research Service notes in a February report, “fewer than 39 percent of current U.S. manufacturing workers are directly engaged in production.” (In addition, the reason Korea and Taiwan outstrip the U.S. is because they have cut back in manufacturing in areas like apparel that require many workers.)

That means in a certain way, beyond regular cyclical fluctuations, it makes sense that manufacturing isn't adding to jobs or GDP like it once was. Meanwhile, growth in areas like the tech sector and service industries also means that manufacturing won't be able to take up the slice of the GDP pie that it once did.

That means in a certain way, beyond regular cyclical fluctuations, it makes sense that manufacturing isn't adding to jobs or GDP like it once was. Meanwhile, growth in areas like the tech sector and service industries also means that manufacturing may not be able to take up the slice of the GDP pie that it once did.

The real debate around the manufacturing renaissance may be a matter of splitting hairs. If by “manufacturing renaissance” one means the industry once again being a massive, driving force in the U.S. economy that employs a considerable chunk of the population, that seems unlikely. If one means an industry reborn as something entirely different from what it once was -- new products, higher productivity, more hand-off labor, and far fewer jobs -- then yes, a renaissance is already well underway.