Is American Manufacturing in Decline? Kevin Kliesen Business Economist and Research Officer Federal Reserve Bank of St. Louis Trade and the Future of Industry: A Conference Co-Sponsored by the GIC and the Federal Reserve Bank of Chicago September 12, 2018
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Disclaimer The views I will express today are my own and do not necessarily reflect the positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System. 2
Motivation •
This presentation is based on Kliesen-Tatom (2018).
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A popular view holds that manufacturing is in secular decline—and that China is the chief culprit.
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This view is based on the loss of 5 million manufacturing jobs since 1998, a perceived loss of international competitiveness, and large trade deficits.
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Our view: U.S. manufacturing remains globally competitive, but it faces some headwinds of uncertain duration. 3
Diverging Trends in Output. Real GDP and Manufacturing Industrial Production, 1950-2018 Index, 1950 = 100 900
China Joins WTO
800
Real GDP
700
Industrial Production
600 500 400 300 200 100 0 1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source: Department of Commerce (Bureau of Economic Analysis), Board of Governors of the Federal Reserve System, and Haver Analytics.
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Diverging Trends in Employment. Private Nonmanufacturing and Manufacturing Payroll Employment, 1950-2018
(Thousands)
(Thousands) 120,000
20,000
Manufacturing (Right)
100,000
18,000
80,000
16,000
60,000
14,000
Total Nonfarm Less Manufacturing (Left)
40,000
12,000
10,000
20,000
China Joins WTO 8,000
0 1950
1957
1964
1971
1978
1985
1992
1999
2006
2013
SOURCE: Bureau of Economic Analysis and Bureau of Labor Statistics
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The Problem with Manufacturing. Real Manufacturing Value Added Per Employee Index 1950=100
Percent changes at annual rates
900 800 700
Labor Productivity Growth: Nonfarm Business and Manufacturing Sectors, 1973 to 2018 5.0
4.4
China Joins WTO 4.0
600
3.0
500
2.6
400
2.0
300 200
1.4
0 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 SOURCE: Bureau of Economic Analysis (GDP by Industry) and Haver Analytics.
Manuf.
1.2
1.0
100
NFB
2.7
0.5
0.0 1973-1995
1995-2007
2007 to 2018
SOURCE: Forbes (2004), BLS, and Haver Analytics
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But the United States is Still the Low-Cost Manufacturer.
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OECD Manufacturing Output Shares. OECD Manufacturing Output Shares: 1997 vs. 2016 Percent
40 35
1997 Shares
30
2016 Shares
25 20 15 10 5 0 Germany
France
United Kingdom
Italy
Japan
Korea, Rep.
Mexico
United States
Sources: OECD data from the World Bank and authors' calculations.
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Causes of Slower Growth • Domestic factors: − Poor cyclical performance since 2007 − Demographics and structural labor market effects: − Slower growth capital formation
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Foreign factors: − China effects. − We find mixed evidence for U.S. manufacturing employment. 9
Domestic Factors: Cyclical and Structural Effects The Employment-to-Population Ratio, 1984 to Present Percent 66 65 64 63 62 61 60 59 58 57 56 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Source: Bureau of Labor Statistics.
Data through August 2018.
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Domestic Factors: Slower Growth of Business Fixed Investment Percent of Real Net National Product
Net Real Business Fixed Investment Has Slowed Sharply Since 2000 8 7 6 5 4 3 2
Actual
1
Trend
0 1948
1954
1960
1966
1972
1978
1984
1990
1996
2002
2008
2014
Source: BEA and author's calculations. Final observation is 2016. 11
Foreign Factors: A Widening Goods Trade Gap Real U.S. Goods Exports and Imports , 1950-2018 Index, 1950 = 100 5000
China Joins WTO
4500 4000
Goods Imports
3500 3000 2500
Goods Exports
2000 1500 1000 500 0 1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source: Department of Commerce (Bureau of Economic Analysis), Board of Governors of the Federal Reserve System, and Haver Analytics.
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Causes of Slower Growth: Empirical Analysis •
Domestic economic conditions are the most important variables that influence U.S. manufacturing output and employment.
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We also find some evidence that the rise of China lowers U.S. manufacturing employment after 2002. − Trend-break tests support empirical literature. − But real imports of Chinese goods are not significant in
explaining the growth of U.S. manufacturing employment. 13
What Matters More to Manufacturing Production: Imports or Exports? Growth of Manufacturing Production and U.S. Real Goods Exports Percent changes, annual data (1981-2017) IP-Mfg. 15
R² = 0.48
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Growth of Manufacturing Production and U.S. Real Goods Imports
Percent changes, annual data (1981-2017) IP-Mfg. 15 10
R² = 0.81
5
5
0
0
-5
-5
-10
-10
-15 -20
-15 -15
-10
-5
0
5
Real Goods Exports
10
Goods Exports
15
20
-20
-10
0
Real Goods Imports
10
20
30
Goods Imports 14
What Matters More to Manufacturing Employment: Imports or Exports? Growth of Manufacturing Employment and U.S. Real Goods Exports Percent changes, annual data (1981-2017) Mfg. Employment 8
R² = 0.37
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Growth of Manufacturing Employment and U.S. Real Goods Imports Percent changes, annual data (1981-2017) Mfg. Employment 8
R² = 0.37
4
0
0
-4
-4
-8
-8
-12
-12
-16
-16 -15
-10
-5
0
5
Real Goods Exports
10
Goods Exports
15
20
-30
-20
-10
0
Real Goods Imports
10
20
30
Goods Imports 15
Conclusions •
Key insights from today’s presentation about U.S. manufacturing: − Output growth has not returned to pre-2007 rates. − Manufacturing has been hurt by cyclical and structural forces. − But U.S. manufacturing is globally dominant (size-wise) and
competitive. − Reliance on global supply chains for U.S. manufacturing output
(importance of goods imports). 16