Magical Manufacturing Thinking: Manufacturing NOT the Bright Spot in the U.S. Economy

A great deal of economic thinking in the U.S. has become based on fads and popular delusions and the current one that says manufacturing is back and leading the recovery is a prime example. Don’t worry about the United States losing a greater share of its manufacturing jobs in the last decade than we did in the Great Depression, this thinking goes, manufacturing is coming back! The New York Times journalist Floyd Norris’s recent article is emblematic of such thinking.

Norris’s piece looks at some recent data to draw what are ultimately faulty conclusions:

In total exports, including manufactured goods as well as other commodities like agricultural products, the United States ranked second in the world in 2010, behind China but just ahead of Germany.

Of course we do, we’re the largest economy in the world. Besides, it’s not exports that matter, its trade balance, and on this we are running massive trade deficits in goods production, which have been increasing since the end of the recession.

Since employment in the United States hit its recent low, in February 2010, the economy has added 2.4 million jobs through November, of which 302,000 were in manufacturing.

But this represents 12.5 percent of job growth, pretty much consistent with manufacturing’s share of total employment.

When the Labor Department reports December employment numbers on Friday, it is expected that manufacturing companies will have added jobs in two consecutive years. Until last year, there had not been a single year when manufacturing employment rose since 1997.

But what Norris overlooks is the loss of manufacturing jobs in this recession was the largest ever with a loss of 15 percent. Compare that to the ‘90-‘91 recession where manufacturing lost just 3 percent of its jobs. So of course manufacturing jobs will come back somewhat. 

Yet compared to other recessions, they are not coming back all that strong. According to the BLS, since the end of the recession, manufacturing has added less than 1 percent of new jobs.  Compare this to the recessions in 1969, 1974, and early ‘80s when after 29 months manufacturing added 6.6 and 8 percent, respectively. 

It’s simply wishful thinking to imagine that all is well in Mudville and we can just sit back and reap the manufacturing renewal. As I pointed out recently, the Boston Consulting Group has also succumbed to this kind of magical thinking. The reality is if America wants a manufacturing rebound, it can’t just hope, wish and pray. It has to act. And that means putting in place robust tax incentives for companies to invest in R&D and new capital equipment in America so that we lower the effective U.S corporate tax rate while also giving companies the incentive to invest in the building blocks of growth and competitiveness. It means much tougher enforcement of our trade laws against rampant mercantilists like China. It means expanding, not cutting, funding for important programs like NIST’s Manufacturing Extension Partnership. And much, much more.

Manufacturing can come back. Manufacturing needs to come back if the recovery is to get any real traction. But it will not come back by magical thinking.