Everybody seems to be worried about manufacturing these days. All the Democratic presidential candidates condemn the practice of "outsourcing" -- laying off manufacturing workers and buying their output more cheaply from China. This is not surprising, given that organized labor has made it a high priority issue. But they are being joined by some on the right-wing fringe as well, such as Pat Buchanan and Paul Craig Roberts, who warn that we are exporting our sovereignty along with our jobs. They all seem to think that more trade protection is the answer.
The truth is that manufacturing is doing just fine in every way except employment. However, few economists would judge the health or sickness of any industry solely based on employment. By that standard, agriculture has been the sickest industry of all for decades. Rather, such things as output, productivity, profitability and wages better determine industrial health. On this score, manufacturing is actually doing quite well in the United States.
Let's start with the bad news. According to the Bureau of Labor Statistics, there were 14.6 million Americans employed in manufacturing in July, down from 15.3 million a year earlier, 16.4 million the year before that (2001) and 17.3 million the year before that (2000) -- a decline of 16 percent in 3 years. The recent peak for manufacturing employment occurred in March 1998 at 17.6 million -- about the same as it had been for the previous 15 years.
By contrast, industrial production has remained relatively strong. The Federal Reserve Board's industrial production index is up 5 percent since manufacturing employment peaked in 1998, and down just 5 percent from the index's peak in July 2000, despite a rather severe recession in the meantime.
Looking at gross domestic product, real goods production as a share of real (inflation-adjusted) GDP is close to its all-time high. In the first quarter of 2003 -- the latest data available -- real goods production was 39.2 percent of real GDP. The highest annual figure ever recorded was 40 percent in 2000. By contrast, in the "good old days" of the 1940s, 1950s and 1960s, the United States actually produced far fewer goods as a share of total output. The highest figure recorded in the 1940s was 35.5 percent in 1943; the highest in the 1950s was 34.9 percent in 1953; and the highest in the 1960s was 33.6 percent in 1966.
Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.
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