There he goes again. At the end of 2012, James Fallows contributed one of two Atlantic cover stories claiming that America is on the verge of spurring a renaissance in its manufacturing sector or actually starting to enjoy one. Since then, we’ve discovered:
>that it took domestic industry more than six years to return to its pre-recession output levels (adjusted for inflation), and that as of August, it’s now a grand total of 0.99 percent bigger than it was when the last recession began at the end of 2007;
>that manufacturing’s trade deficit with the world as a whole has set new all-time records every year since 2011, and this year is running 11.30 percent ahead of last year’s record $647.77 billion pace;
>that its multi-factor productivity rate, although still a good deal higher than that of the private sector as a whole, stands at historically low levels for an economic expansion; and
>that its wages have been fared much worse than private sector wages during the current recovery – among other problems.
But Fallows has just come out with another boosterish Atlantic article, describing “three big trends” that could boost the fortunes both of high-value manufacturing in the nation, and its middle class.
I can’t comment knowledgeably about the third trend Fallows discusses – the supposed possibilities of innovation in logistics and related fields for revolutionizing small-scale manufacturing (on a large scale). But as was the case with the two year-end 2012 manufacturing renaissance articles, his optimistic treatment of the two other trends seems oblivious to the most important data available.
For example, Fallows claims that “U.S. companies large and small are expanding their export ambitions.” That’s nice to hear. But what’s actually happening? According to the most accurate Census Bureau measure of American manufacturing’s overseas sales, the annual growth of these domestic plummeted from 18.76 percent in 2010 (as the sector snapped back from a deep recession) to 1.73 percent in 2013. So far this year, the slowdown in export growth has reached 1.30 percent.
The author also cites a McKinsey & Co. report predicting that, going forward, high-value manufacturing is increasingly likely to stay in the United States because global supply chains are becoming more vulnerable to disruption, because too many quality problems are emerging at offshored and other foreign factories, because by definition driving labor costs down in these sophisticated industries is less important all the time, and because international transportation is getting more expensive.
Encouraging? Sure. Reflected in the data yet? Not even close. For example, here’s a – partial – list of manufacturing parts and components industries that have seen double-digit import growth so far this year (through July): motor vehicle engines and engine parts; motor vehicle steering and suspension equipment; motor vehicle seating and interior trim; motor vehicle brakes; vehicular lighting equipment; aircraft parts and equipment; printed circuit assemblies; non-automotive miscellaneous engine equipment; speed changer, high speed drives, and gears; air and gas compressors; heavy-gauge springs; and electronic capacitors and parts .
Right behind them, with high single-digit annual growth so far this year, are miscellaneous auto parts; motor vehicle electric equipment; plastics materials and resins; relays and industrial controls; ball and roller bearings; motors and generators; power boiler and heat exchangers; and many others.
The clear conclusion: Despite McKinsey’s forecasts, domestic manufacturers are displaying no reluctance whatever to use worldwide supply chains and massive amounts of imported inputs rather than procure these products domestically.
The second major positive development Fallows anticipates is a mini-(but presumably significant) rebound in manufacturing jobs that pay a middle class wage. Again, he cites McKinsey:
“[M]anufacturing and service-sector roles increasingly overlap. Big industrial firms hire lots of designers, software engineers, accountants, and other service professionals. Architecture firms and design companies need their own 3 D printers (and people to maintain them) and advanced-materials workshops. Across the board, McKinsey concludes, we should expect to see more of the kind of jobs that could help offset the winner-take-all pressures that have distorted America’s income distribution.” Among the sectors where such jobs will be in high demand: automotive.
Everyone should cheer this type of development. But why didn’t Fallows mention that so far during the recovery, inflation adjusted wages for manufacturing workers have fallen by more than two percent? Real wages for all private sector workers, by contrast, have actually risen by 0.19 percent. And that automotive sector? Real wages there are down by nearly six percent during the recovery. Moreover, these wage figures cover all employees – including professionals – not simply blue collar production workers.
And there’s a final problem with Fallows’ article: It’s apparently based in part on interviews with General Electric’s head of aviation, David Joyce. Joyce has proudly shared with the author facts and predictions such as “GE’s U.S.-based engine factories already send 55 percent of their output abroad and expect to send 75 percent within five years.” The company’s goal, Joyce told Fallows is “make it here, sell it there, and service it everywhere.”
But GE, like most other multinationals, is notorious for disclosing only those international trade, investment, and sourcing facts that portray it in the most favorable light. As I’ve written, I’ve asked the company to reveal its global trade balance – not just its exports. GE refused. In Fallows’ case, he should have asked Joyce about some other key data – the foreign versus U.S. content of its jet engines and related products, and how this ratio has changed in recent years. Instead, he’s let the company continue to spread propaganda.
It’s true that, if enough anecdotes like those in Fallows’ piece are strung together, they become data. But when the data still massively override and strongly clash with the anecdotes, reporting a handful of feel-good stories can only mislead, however unintentionally – and possibly add complacency to the list of obstacles facing domestic manufacturing.