Time to Stop Blaming Manufacturing Job Losses on the (Nonexistent) Shift to Services

The U.S. lost more than 5 million manufacturing jobs since 2000 (roughly a 30 percent drop), while nonmanufacturing jobs have grown by 8 percent. Understanding why is critical to developing the right policy response.

Unfortunately, too many apologists for U.S. manufacturing decline argue that manufacturing employment loss is a natural trend. They blindly follow the assumption that as economies get richer they naturally consume a smaller share of manufactured goods and a larger share of services.  Therefore, we should expect manufacturing job losses.

New data from the St. Louis Federal Reserve Economic Data should hopefully put an end to these false claims. Recent analysis demonstrates that after adjusting for inflation, the share of real consumption of services has actually decreased slightly after reaching a peak in 1992. At the same time, durable goods manufacturing consumption is growing as a share of total consumption.

Accounting for inflation, services reached a peak of 70 percent of total consumption in the mid-1990s and have since declined to around 66 percent. This is not so different from the late 1950s when services made up 62 percent of total consumption. Meanwhile, the consumption of durable goods, which includes goods such as cars, computers and machinery, and manufactured goods, is higher than ever. Nondurables, which include food, textiles, chemicals, and plastics, have decreased steadily, dropping from 33 percent to 22 percent of consumption from 1959 to today. But total manufacturing consumption has on the whole been on the rise since 1992. American consumers spend a lower percentage of their income on the basics—food, clothes, fuel, and other nondurables. However, consumers are using this extra income to purchase more vehicles, computers, phones and other electronic devices, rather than simply buying more services.

And yet job losses in durable and nondurable goods have been more or less identical, losing 30.8 and 30.5 percent of jobs respectively from 2000 to 2013, suggesting that consumption changes are not to blame. Rather, production changes are to blame. In other words, it’s been the loss of U.S. manufacturing competitiveness and the rise of our manufacturing goods trade deficit that has been responsible for at least 33 percent of the job loss (with higher productivity being responsible the remaining 66 percent).

In short, it’s time to stop blaming non-existent consumer shifts to services for the decline of U.S. manufacturing jobs.