Pollyannaish optimism relating to the limited success of manufacturing since the end of the great recession serves only to obfuscate the ongoing challenges American manufacturing faces.
Washington, DC (PRWEB) January 12, 2015
For the casual observer, it is easy to get the impression that American manufacturing has entered a new and exciting period of revival. Many in the media, along with consulting firms, think tanks, and economists, now proclaim the emergence of a U.S. “manufacturing renaissance,” marked by the “reshoring” of production and the growing competitiveness challenges of many foreign nations vis-à-vis the United States. If only this were true.
The Myth of America’s Manufacturing Renaissance: The Real State of U.S. Manufacturing, a new report by the Information Technology and Innovation Foundation (ITIF), assesses the true status of the American manufacturing economy and argues pundits have overestimated the impact of isolated incidents of reshored production and misread or ignored the data.
If there were a true renaissance, we’d expect to see growth in inflation-adjusted manufacturing value added. But in fact 2013 manufacturing value added is 3.2 percent below 2007 levels, with non-durable goods value-added (which includes chemicals and oil and gas) down almost 12 percent. U.S. manufacturers employ over a million fewer workers and there are 15,000 fewer manufacturing establishments since the beginning of the Great Recession. Moreover, America ran a $458 billion trade deficit in manufacturing goods in 2013. Hardly evidence of a renaissance.
And most of the recovery that has occurred has been cyclical in nature. In fact, 122 percent of manufacturing output growth between 2010 and 2013 was in the auto sector, whose growth is due almost solely to a rebound in U.S. consumer demand, rather than reshoring of automobile production.
“Most of the claims for a structural rebirth of U.S. manufacturing are unfortunately based on myths and anecdotes,” states Robert Atkinson, President of ITIF and co-author of the report. “Instead, any assessment of U.S. manufacturing should be based on rigorous analysis and review of the official data.”
The report first reviews a wide range of government data sets to present a clearer picture of the U.S. manufacturing environment. It then rebuts a number of myths about manufacturing renewal. These include:
Myth: U.S manufacturing has recovered from the Great Recession.
Fact: Despite 3 years of steady growth, manufacturing employment and output numbers are below where they were in 2007.
Myth: The United States only lost jobs and production in low-wage, low-skill industries.
Fact: The United States has struggled in advanced technology goods, and in 2013 ran an $81 billion dollar trade deficit. Additionally, United States production in machinery has fallen 3 percent and electrical equipment, appliances, and components output has fallen by 13.8 percent since 2007.
Myth: China’s rising labor costs are leveling the playing field.
Fact: Chinese wages, while rising, are estimated to be just 12 percent of average U.S. wages in 2015. Moreover, growth in wages is in some part offset by rapid Chinese labor productivity growth.
Myth: The shale gas boom gives U.S. manufacturing a substantial advantage.
Fact: Reduced costs for shale energy have only had an impact on energy-intensive industries, and then only a minor one. For 90 percent of the manufacturing sector, energy costs are lower than 5 percent of shipment value. Moreover, real value added in the petroleum refining and chemical sector actually declined by over 9 percent between 2010 and 2013.
“Pollyannaish optimism relating to the limited success of manufacturing since the end of the great recession serves only to obfuscate the ongoing challenges American manufacturing faces, including high effective corporate tax rates, limited public investment in industrial R&D, and pernicious foreign ‘innovation mercantilism’,” notes Adams Nager, Economic Research Assistant with ITIF and co-author of the report. “In order to ensure that the renaissance narrative is more than marketing hype, Congress will need to act boldly to address the issues American manufacturers face.”
Read the report.