Yesterday, I reported that, despite a good initial read on its January inflation-adjusted output, American manufacturing kept skirting the edge of a technical recession – that is, production falling on net for six consecutive months (or two straight quarters). Now let’s take a closer look at this development, and identify the sector’s specific growth winners and losers.
Those latest Federal Reserve industrial production figures I wrote about showed that domestic manufacturing’s 0.49 percent month-to-month output rise in real terms was just strong enough to keep it out of six-month cumulative decline territory. Still, that performance left after-inflation production down on net for the previous five straight months, and upcoming revisions could reveal that a technical slump has indeed taken place.
At the same time, lots of manufacturing is indeed in technical recession as of this new January data. Based on the latest available (2012) shares of manufacturing value added (a slightly different measure than the real gross output measured by the Fed), fully 41.54 percent of industry has seen an after-inflation cumulative production decline since at least last July.
Worse, this 41-plus percent figure includes some of the nation’s highest value-added sectors. I only looked at fairly broad categories, but they included aerospace, machinery, and automotive. But even the 41 etc percent figure arguably understates the problem. For it’s based only on production data since the current overall American economic recovery began – in the middle of 2009.
What if we began at the onset of the last recession – in December, 2007? In that case, the entire American manufacturing complex remains in recession, as its constant dollar output is still down 1.27 percent since then. At the same time, this downturn has undoubtedly hit manufacturing unevenly. So which sectors have done better and which have done worse? The results don’t impress.
Of the 20 broad manufacturing sectors tracked by the Fed (it breaks many of them down, but let’s examine this level of detail first), only seven are larger today in terms of real output than they were when the economy started cratering: computer and electronics products; automotive; aerospace and miscellaneous transportation; miscellaneous manufacturing; food, beverage, and tobacco products; petroleum and coal products; and plastics and rubber products. And aerospace, at 0.26 percent, just barely qualified. The two growth leaders by far have been the computer category (up 24.27 percent after inflation) and automotive (up 26.61 percent).
Taken together, the seven winners accounted for 49.53 percent of all industry’s value added in 2012, which is somewhat encouraging.
But this also means that all the other industries have shrunk in inflation-adjusted terms, and they comprised the majority of U.S. manufacturing in 2012. This list includes fabricated metal products; primary metals; machinery; electrical equipment, appliances and components; and chemicals. The two “biggest losers” were apparel and leather products (where real output has nosedived by 45.39 percent) and a catch all “other manufacturing” grouping (down 35.24 percent).
There’s one proviso, however, that needs to be mentioned: As I’ve previously written, it’s likely that inflation-adjusted production in that computer sector is being considerably overestimated. The reason: Prices in these industries, and especially in their flood of imported parts and components, are falling much faster than government economists can measure them. When a proper adjustment is made for this deflation, the value of these components in these high tech goods rises, and the value of the remaining domestic content falls. And a significant over-count of this big sector could result in a meaningful over-count of all manufacturing production.
Thankfully, most American leaders and even economists who have belittled manufacturing’s importance to the nation’s economy appear to have changed their tune or gone into hiding. If only the political and business establishment showed signs of having a clue how to foster the real manufacturing renaissance the nation so urgently needs.