U.S. Manufacturing in a Global Context

U.S. Manufacturing In A Global Context

Global Interdependence Center Sarasota, FL February 1, 2019

William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago

Is the U.S. Losing Its Manufacturing Base?

The Setup

Manufacturing output peaked in December 2007 and fell 20.8% over the following 18 months Industrial production - manufacturing Index 2012 = 100

110 100 90 80 70

60 50 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Manufacturing capacity utilization collapsed to the lowest rate in 80 years Capacity utilization - manufacturing percent

86 84 82 80 78 76 74 72 70 68 66 64 62 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Job declines in the manufacturing sector were significant, with nearly 2.3 million jobs lost over that same period Manufacturing employment percent

5 0 -5 Percent change from a year earlier

-10

-15 Quarterly change (saar)

-20 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

How has Manufacturing Performed Over the Past Seventy Years?

Manufacturing employment as a share of national employment has been declining for over 70 years Manufacturing employment as a share of total nonfarm employment percent

40 35 30 25 20 15 10

5 0 1940

'50

'60

'70

'80

'90

'00

'10

The number of jobs in manufacturing has been relatively stable over this period, edging lower on average by -0.3% per year since 1947 Manufacturing employment mi l lions

20 18 16 14 12 10

8 6

4 2

0 1940

'50

'60

'70

'80

'90

'00

'10

Not to make a mountain out of a molehill, but manufacturing employment was increasing up until 1979 and has been moving lower over the past 40 years Manufacturing employment mi l lions

20 18 0.8%

16 -1.0%

14 12 10 1940

'50

'60

'70

'80

'90

'00

'10

However, service sector employment has grown more than fourfold over this period, averaging growth of 2.3% per year since 1947 Employment mi l lions

150 125 s ervi ce

100 75 50

25 ma nufacturing

0 1940

'50

'60

'70

'80

'90

'00

'10

While manufacturing employment has been edging lower over the past 70 years, manufacturing output increased by 3.2% per year Manufacturing output Index 2012=100

120 100 80 60 40

20 0 1940

'50

'60

'70

'80

'90

'00

'10

This translated into an almost 600 percent increase in manufacturing output over this time period Manufacturing Index 2012=100

mi l lions

120

output - l eft scale

120

100

100

80

80

60

60

40

40

20

20 empl oyment - ri ght s cale

0

0 1940

'50

'60

'70

'80

'90

'00

'10

The increase in output can be attributed to strong productivity growth experienced by the manufacturing sector Manufacturing productivity Index 1950=100

600 500 400 300 200

100 0 1950

'60

'70

'80

'90

'00

'10

What took 1,000 workers to produce in 1950 takes 162 workers today Manufacturing sector: Number of workers needed to do the work of 1,000 workers in 1950 Number of workers

1,000 900 800 700 600 500 400 300 200 100 0

1,000 813

627 485 388

260

1950

1960

1970

1980

1990

2000

176

162

2010

2017

Manufacturing productivity had been growing faster over the past 50 years, with a significant slowdown in this decade Productivity Avera ge annual percent change

5 Nonfa rm business

Ma nufacturing 3.9

4

3.6 3.3

2.8

3

2.6

2.7

2.6 2.2

2.2 2.1 1.8

2

1.6 1.8

1 0.2

0 1950s

1960s

1970s

1980s

1990s

2000s

2010-2017

The divergence in productivity appears to have occurred around the mid-1970s Productivity Index 1975=100

300

ma nufacturing

250 200 150 nonfarm business

100

50 0 1950

'60

'70

'80

'90

'00

'10

This divergence is especially apparent in durable manufacturing Productivity Index 1975=100

400

dura ble manufacturing

350 300 250 200 nondurable ma nufacturing

150 100

50 0 1950

'60

'70

'80

'90

'00

'10

Manufacturing employment losses have occurred across numerous countries – among 20 big economies, 22 million jobs were lost Percent change in manufacturing employment: 1995-2002 percent

25 20 15 10 5 0 -5 -10 -15 -20 -25

Strong productivity growth had allowed the manufacturing sector to grow faster than the overall economy Output Index 1947=100

1000 rea l GDP

900 800

i ndustrial production - ma nufacturing

700 600 500

400 300

200 100

0 1950 '55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

However, lower relative prices in the manufacturing sector has lead to manufacturing comprising a smaller share of GDP over time Manufacturing share of GDP percent

30

25

20

15

10 1950 '55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

However, the US still makes over 70% of what it consumes % of US manufactured goods consumed in 20101 by source 100

Made in: China

80

60 Other lowcost countries

40

Rest of the World

20

Net US 0 Food and Beverages

Petroleum and Coal Fabricated ChemicalsPrimary metal Transportation goods Machinery Computers Apparel, Wood Products Plastics and Rubber Furniture Textiles and Fabrics metals & electronics footwear, & Paper Products Glass, Stone, and Minerals Miscellaneous accessories Appliances & Electrical equipment

Value of US manufactured goods consumed by category (Billion USD)

From the Boston Consulting Group

How profitable is manufacturing?

While more cyclical, profits in manufacturing have out-performed returns in nonfinancial corporate businesses Profits - as a percent of value added percent

30 25

ma nufacturing

20 15 10 nonfinancial corporate business

5 0 1950

'55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

The Manufacturing Sector Continues to Re-invent Itself

Over the last twenty years the fastest growing sector, not surprisingly, has been computer and electronic components Industrial output: 1990 - 2018 percent change (annual ra te)

-10 Manufacturing Durable Goods Wood Products Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products Miscellaneous Durable Goods Nondurable Manufacturing Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products Other Manufacturing

-5

0

5

10

15

There has been a large number of industrial sectors that have risen and fallen over the past twenty-eight years Industrial output: 1990 - 2018 percent change (annual ra te)

-8 Manufacturing Durable Goods Wood Products Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products Miscellaneous Durable Goods Nondurable Manufacturing Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products Other Manufacturing

-6

-4

-2

0

2

4

The industrial sector output growth has been solid during 2018 Current 3 Month Moving Average Growth is: Above Trend and Accerating Above Trend and Decelerating Below Trend and Accelerating Below Trend and Decelerating Contracting but Improving Contracting and Deteriorating

Manufacturing Industries Activity Chart Growth (3-month moving average) compared with the most recent 5-year trend 2012

Manufacturing Wood Products Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Misc. Transport Equip Furniture and Related Products Miscellaneous Durable Goods Food, Beverages, and Tobacco Textile and Product Mills Apparel and Leather Goods Paper Printing and Related Support Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products

1.1% 3.5% 2.9% -0.3% 0.2% 0.3% 3.4% 0.9% 3.5% 0.1% 1.2% -1.2% 1.4% -1.0% -4.9% -0.6% -1.3% 1.1% 0.9% 1.9%

2013

2014

2015

2016

2017

2018

Is the U.S. positioned to continue its strong productivity gains?

U.S. maintaining its commitment to research and development Research and developmentexpenditures as a share of GDP percent

3.0

2.5

2.0

1.5

1.0 1955

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

The vast majority of U.S. research and development is being privately funded Share of research and developmentthat is privately funded percent

80 70 60

50 40 30 1955

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

The Current Expansion

GDP expanded by 3.0% over the past year

Real gross domestic product percent

8

6 4 2 0

-2 -4

Percent change from a year earlier

-6 -8

Quarterly change (saar)

-10 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

The Chicago Fed National Activity Index 3-month average has been above trend during 2018 Chicago Fed National Activity Index 2.0 1.0 0.0 -1.0 -2.0

Three month average

-3.0 -4.0 Monthly

-5.0 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11'12 '13 '14 '15 '16 '17 '18

The Federal Open Market Committee (FOMC) expects GDP to grow above trend in 2018 and 2019; and around trend in 2020 and 2021 Real gross domestic product percent change from a year earlier

6 5 4 3 2 1 0 -1 -2 -3 -4 -5

FOMC Central Tendency (December 2018) 2018 2019 2020 2021

3.0 – 3.1 2.3 – 2.5 1.8 – 2.0 1.5 – 2.0

Longer run

1.8 – 2.0

FOMC

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

The probability of recession in the next two quarters remains low Probablility of a recession - two quarters ahead percent (Survey of Professional Forecasters) 60 50 40 30 20 10 0 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

The index of leading indicators continues to rise, although it ticked lower in December Composite Index of 10 Leading Indicators Index (2016=100)

120 100 80 60 40 20 0 1960

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

Employment increased by over 2.6 million jobs in 2018

Total employment percent

4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7

Percent change from a year earlier

Quarterly change (saar) 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

The unemployment rate has fallen to 3.9%

Unemployment rate percent

11

10 9

8 7

6 5

4 3 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

The FOMC forecasts that the unemployment rate will be well below the natural rate through 2021 Unemployment rate percent

11 10 9

FOMC Central Tendency (December 2018)

2019 2020 2021

3.5 – 3.7 3.5 – 3.8 3.6 – 3.9

Longer run

4.2 – 4.5

8 7 6 5

4 3

FOMC 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

Wages and benefit costs continue to increase at a moderate rate, although it may finally be picking up some its pace Employment cost index percent change from year a go

8

benefit costs

7 6

5 4

3 2

1

wages and salaries

0 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

There is a very strong correlation between 9-month lead NFIB: planning to raise compensation and Employment Cost Index: wages and salaries Employment cost index - wages and salaries and NFIB: Companies planning to raise wages and salaries % of fri ms

% y/y

25

20

4.5

ECI: wages and salaries (private industry workers) - right scale

4.0 3.5

15

3.0

10

2.5 2.0

5 0

NFIB: Companies planning to raise worker compensation (9 month lead) - left scale

Correlation = 0.84

1986 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

1.5 1.0

Slow productivity growth over the past nine years helps explain why relatively strong employment growth has not translated into higher wages Productivity percent change (20-qtr ra te)

5 4 3 2 1 0 -1 1950

'55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

A large part of the weakness in productivity growth has been the weak pace of investment, although it has been increasing at a strong pace beginning in 2017 Real private nonresidential fixed investment percent

20 10

0 -10

Percent change from a year earlier

-20

-30

Quarterly change (saar) 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

This may help explain the productivity growth improvement over the past year Productivity percent change from a year earlier

8 7 6 5 4 3 2 1 0 -1 -2 -3 1950

'55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

Improving productivity growth is helping to keep unit labor cost growth down even with rising compensation Unit labor cost percent

20 15 10 5 0

-5

Percent change from a year earlier

-10 Quarterly change (saar)

-15 1950

'55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

Corporate profits continue to improve

Nonfinancial corporate profits percent

200

Quarterly change (saar)

150

100 50 0 -50 Percent change from a year earlier

-100 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Inflation is just below the Fed target of 2%

Personal consumption expenditure - chain price index percent change from a year earlier

6

5 4 3

2 1 0

-1 -2 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

The FOMC anticipates that PCE inflation will be around its two percent target through 2021 Personal consumption expenditure - chain price index percent change from a year earlier

FOMC Central Tendency (December 2018)

6

2018 2019 2020 2021

5 4

1.8 – 1.9 1.8 – 2.1 2.0 – 2.1 2.0 – 2.1

Longer run

2.0

3

FOMC

2 1 0

-1 -2 1990 '92

'94

'96

'98

'00

'02

'04

'06

'08

'10

'12

'14

'16

'18

'20'21

Manufacturing

Beginning in July 2009, manufacturing output in the United States has been increasing at a 2.4% annualized rate and has recovered 94.2% of the drop in output Industrial production - manufacturing Index 2012 = 100

110 100 90 80 70

60 50 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Manufacturing capacity utilization has improved substantially from the lows of 2009 Capacity utilization - manufacturing percent

86 84 82 80 78 76 74 72 70 68 66 64 62 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

And while manufacturing jobs have been added, they have only recovered 60.6% of the jobs lost during the downturn Manufacturing employment percent

5 0 -5 Percentchange changefrom froma ayear yearearlier earlier Percent

-10

-15 Quarterly Quarterlychange change(saar) (saar)

-20 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Average weekly hours in manufacturing are at the extremely high levels Average Weekly Hours: Production & Nonsupervisory: hours Manufacturing 43 42 41

40 39 38 1950

'55

'60

'65

'70

'75

'80

'85

'90

'95

'00

'05

'10

'15

Yet, wages, which are rising, are not rising very fast

Manufacturing: Average Hourly Earnings: Production & Nonsupervisory percent change from a year earlier

5 4

3 2

1 0 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11'12 '13 '14 '15 '16 '17 '18

The pace of price increases for manufactured goods have pulled back in the second half of last year PPI: Manufacturing percent change from a year earlier

15

10 5 0

-5 -10 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11'12 '13 '14 '15 '16 '17 '18

The purchasing managers’ composite index has moderated to a still relatively solid level Purchasing managers' index - composite net percent reporting i ncreases

65 70

Chicago

65 60 60 55 55 50 50 45 45 40 40

35 35

United States

30 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11'12 '13 '14 '15 '16 '17 '18

Industrial production is forecast to rise at a slower pace this year and moderate further in 2020 Total industrial production percent

10

Percent change from a year earlier

5

0 Q4-2018

-5 -10

Blue Chip CPI Forecast

-15 -20

Quarterly change (saar)

Actual 2018 4.0

Forecast 2019 2020 1.8 1.5

-25 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

2018 U.S. Tariffs

More open countries have had better growth

U.S. tariffs used to be much higher

Tariffs: U.S. versus other countries

Tariffs: U.S. versus other countries

The Blue Chip forecast projects a continuing deterioration in the balance of trade Net exports bi l lions of chained 2012 dollars (saar)

Blue Chip Forecast

0 -200 -400

-600 -800 -1000

-1200

Q3-2018 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Blue Chip International Consensus Forecasts

United States Canada Mexico Japan South Korea United Kingdom Germany France Euro Zone Brazil Russia China India

Real GDP % change Annual 2019 2018 2.6 2.9 1.9 2.1 2.0 2.1 1.0 1.0 2.6 2.6 1.4 1.3 1.6 1.7 1.6 1.6 1.7 1.9 2.4 1.3 1.5 1.7 6.2 6.6 7.3 7.2

2020 1.9 1.8 2.0 0.6 2.5 1.5 1.5 1.5 1.6 2.5 1.8 6.1 7.2

Inflation % change Annual Consumer Prices 2020 2019 2018 2.2 1.9 2.4 2.0 2.0 2.3 3.7 4.2 4.9 1.3 1.1 1.0 1.9 1.8 1.5 2.1 2.1 2.5 1.8 1.9 1.9 1.5 1.6 2.1 1.6 1.6 1.8 4.2 4.1 3.8 4.1 4.5 2.9 2.4 2.3 2.2 4.9 4.5 4.4

Blue Chip Economic Indicators Forecast January 10, 2019

Exchange Rate Against US Dollar End of Year 2020 2019 1.28 1.30 20.38 20.12 110.4 108.7 1,110 1,094 1.36 1.35 1.21 1.18 1.21 1.18 1.21 1.18 3.79 3.85 63.7 65.6 6.80 6.94 71.1 70.8

Interest Rates 3-Month End of Year 2020 2019 2.83 2.64 2.78 2.52 7.30 7.73 0.06 -0.01 2.40 2.02 1.37 1.07 0.29 0.03 0.29 0.03 0.29 0.03 8.02 6.89 7.30 7.21 3.57 3.40 7.08 7.07

Manufacturers’ Purchasing Managers Indexes Ja n-18

Fe b-18

Ma r-18

Apr-18

Ma y-18

Jun-18

Jul-18

Aug-18

S e p-18

Oct-18

N ov-18

D e c-18

Globa l

54.4

54.1

53.3

53.5

53.1

53.0

52.8

52.6

53.2

52.0

52.0

51.5

U nite d S ta te s

55.5

55.3

55.6

56.5

56.4

55.4

55.3

54.7

55.6

55.7

55.3

53.8

Ca na da

55.9

55.6

55.7

55.5

56.2

57.1

56.9

56.8

54.8

53.9

54.9

53.6

Me xico

52.6

51.6

52.4

51.6

51.0

52.1

52.1

50.7

51.7

50.7

49.7

49.7

E urozone

59.6

58.6

56.6

56.2

55.5

54.9

55.1

54.6

53.2

52.0

51.8

51.4

Ge rma ny

61.1

60.6

58.2

58.1

56.9

55.9

56.9

55.9

53.7

52.2

51.8

51.5

Fra nce

58.4

55.9

53.7

53.8

54.4

52.5

53.3

53.5

52.5

51.2

50.8

49.7

Ita ly

59.0

56.8

55.1

53.5

52.7

53.3

51.5

50.1

50.0

49.2

48.6

49.2

S pa in

55.2

56.0

54.8

54.4

53.4

53.4

52.9

53.0

51.4

51.8

52.6

51.1

UK

55.3

55.0

54.9

53.9

54.4

54.4

53.8

53.0

53.6

51.1

53.6

54.2

R ussia

52.1

50.2

50.6

51.3

49.8

49.5

48.1

48.9

50.0

51.3

52.6

51.7

Ja pa n

54.8

54.1

53.1

53.8

52.8

53.0

52.3

52.5

52.5

52.9

52.2

52.6

China

51.5

51.6

51.0

51.1

51.1

51.0

50.8

50.6

50.0

50.1

50.2

49.7

India

52.4

52.1

51.0

51.6

51.2

53.1

52.3

51.7

52.2

53.1

54.0

53.2

Bra zil

51.2

53.2

53.4

52.3

50.7

49.8

50.5

51.1

50.9

51.1

52.7

52.6

Trade with China

China has risen to number one in terms of U.S. imports, representing 21.6% of all imports in 2017 Imports (customs value) bi l lions of dollars

2,500 2,000

rest of imports

1,500

Korea Germany

UK Japan

1,000

Canada Mexico

500

China

0 1975

'80

'85

'90

'95

'00

'05

'10

'15

While China has risen to be our third largest export country, it represents only 8.4% of U.S. exports Exports (f.a.s.) bi l lions of dollars

1,800 1,600 1,400 rest of exports

1,200 1,000 Germany

800

Korea UK Japan

600

China

400

Mexico

200

Canada

0 1975

'80

'85

'90

'95

'00

'05

'10

'15

This difference has led to China having the largest trade deficit with the U.S. Trade balance (customs value) bi l lions of dollars

100 0 -100 China

-200 -300

Mexico Japan Germany

Korea

-400 -500

UK

-600

Canada rest of trade deficit

-700 -800 -900 1975

'80

'85

'90

'95

'00

'05

'10

'15

China has certainly increased the amount of goods flowing into the U.S. Imports (customs value) Index 1990=100

3,500 China

3,000

2,500 2,000

1,500 Mexico

1,000

rest of imports Korea

500

Canada

Germany UK

0 1975

'80

'85

'90

'95

'00

'05

'10

Japan

'15

They have also represented the largest gain for exports from the U.S. Exports (f.a.s.)

Index 1990=100

3,000 China

2,500 2,000 1,500 1,000 rest of imports

Mexico

500

Canada

0

Germany Korea Japan

UK

1975

'80

'85

'90

'95

'00

'05

'10

'15

While China has increased its share of imports to the U.S., the Pacific Rim as a whole has had a declining share since the mid-90s Share of U.S. imports percent

45 40 Pacific Rim

35 30 Pacific Rim excluding China

25

China

20 15 10 5

0 1975

'80

'85

'90

'95

'00

'05

'10

'15

U.S. share of world manufacturing has held steady Manufacturing value added, % of world 100

80

58% 58%

46%

Rest of World 60

China

15%

40

Japan

17%

...and remains the biggest in the world in mfg value add by a sizeable margin

20

US 0 1950

1960

25% 1970

1980

1990

From the Boston Consulting Group

2000

15%

24% 2010

U.S. share of world manufacturing has held steady Manufacturing value added, % of world 100

80

58% 58%

46%

Rest of World 60

China

15%

40

Japan

17%

...and remains the biggest in the world in mfg value add by a sizeable margin

20

US 0 1950

1960

25% 1970

1980

1990

From the Boston Consulting Group

2000

15%

24% 2010

Implication: The U.S. is one of the world's lowest-cost countries for manufacturing Major exporting nation average manufacturing cost structures relative to U.S. (2015 projections) Manufacturing cost index (U.S. = 100) 140

123

120

115

115 108 38

100

100

110

30

28 21

25

2 5

2 6

US = 100

94

19

80

1

2 78

2 6

2 7

77

78

4 4

15

80

77

2 4

77

74

0 U.S.

Germany

France

Labor (productivity-adjusted)

Italy

United Kingdom

Electricity

Natural Gas

From the Boston Consulting Group

Japan

China

Other

Summary •Manufacturing has continued to expand in the U.S. due in large part to strong productivity growth •The outlook is for the U.S. economy to expand at a pace above trend in 2019 and close to trend in 2020 and 2021 •Growth around the world is slowing with no signs of inflation pressures

•U.S. tariffs while higher than recent historical levels are not at a level that puts the expansion at risk

www.chicagofed.org www.federalreserve.gov