U.S. Manufacturing: V-shaped Recovery Before A New Growth Cycle? (Guest Post)

By Dr. Mark J. Perry

Although job openings in the U.S. manufacturing sector slipped slightly in April to 230,000 from 235,000 in March, they have remained above 200,000 for four straight months for the first time since the summer of 2008 (see chart, data here.)

From the recessionary lows of 100,000 through mid-2009, manufacturing job openings have more than doubled to levels not seen since the summer of 2009, two years ago. We can expect ongoing improvements in America's manufacturing sector, both in terms of output and employment, as it continues to remain at the forefront of the economy recovery

In another sign of a strong economic recovery in the manufacturing sector, the after-tax profits of U.S. manufacturing corporations reached a record-high $144.5 billion in the first quarter of 2011, according to data released today by the Census Bureau.

Adjusted for inflation, first quarter profits this year were 6.6% ahead of the previous quarter, and 28.7% ahead of a year earlier. Compared to the pre-recession level of $124.1 billion in the fourth quarter of 2007, manufacturing profits have increased by 16.2% and $20.4 billion.

Another chart (below) shows annual real manufacturing output per worker from 1947-2010 using data from the BEA for manufacturing output by industry and data from the BLS on manufacturing employment.

In 1950, the average U.S. manufacturing employee produced $19,600 (in 2010 dollars) of output, and by 1976 the amount of output per worker had doubled to $38,500. During that period manufacturing productivity was growing annually at 2.63%.

Output per worker doubled again to $75,000 by 1997 (21 years later), as productivity per worker increased to 3.23%. Manufacturing output per worker approximately doubled again to $149,000 by 2010, but it only took 13 years because worker productivity accelerated to 5.42% during this period.

This is an amazing story of huge increases in U.S. worker productivity in the manufacturing sector. In fact, the growth in manufacturing worker productivity more than doubled from 2.63% per year in the period between 1950 and mid-1970s to 5.42% annually between 1997 and 2010. Whereas it took 26 years for output per worker to double during the first period (1950-1976), it only took 13 years during the more recent period (1997-2010).

Manufacturing workers in America keep getting more and more productive, which then allows us to produce more and more output over time, with fewer and fewer workers. That's a great story about an American industry that is healthy, successful and thriving, and not an industry in decline.

By continually increasing worker productivity and productive efficiency, the American manufacturing sector has been hugely successful at achieving one of the most important economic outcomes of being able to "produce more with less." In the process, those efficiency and productivity gains have helped conserve scarce resources, including human resources, more effectively than almost any other industry, except maybe farming.

It's hard to overstate how much the efficiency gains achieved by U.S. manufacturing have contributed to the improvements in our standard of living by making manufactured goods more affordable over time. We should spend less time complaining about fewer workers in manufacturing, and more time celebrating the phenomenal gains in manufacturing worker productivity.

In 2009, the U.S. produced $2.33 trillion of manufacturing output including mining and utilities, according to data from the United Nations. The U.S. ranked #1 in the world for manufacturing, and produced 14% more output than second-ranked China ($2.04 trillion) and twice as much output as third-ranked Japan ($1.15 trillion).

What's most impressive is that the U.S. produced almost as much manufacturing output as the manufacturing sectors of Germany (#4), Italy (#5), France (#6), Russia (#7), U.K. (#8), Brazil (#9) and Canada (#10) combined ($2.44 trillion).

We are constantly hammered with bad news about the decline in the number of manufacturing jobs in the U.S., but we never hear the good news about why that is happening:

I think we can now safely say that the profitability of the U.S. manufacturing sector has made a complete and total V-shaped recovery from the effects of the U.S. recession and global slowdown, and is now well-prepared and situated for a new cycle of growth and expansion in output, sales, jobs, R&D, and capital investment.

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