In April, I reported on the government’s release of detailed, industry-by-industry figures for labor productivity growth (or contraction!) in manufacturing, and noted that “these new 2015 figures show a head-scratching list of out-performers, mediocrities, and laggards. Specifically, the champs include lots of sectors that few would consider ‘high tech’ or “industries of the future’ or ‘knowledge-intensive,’ and the mediocrities include many that would be lumped into those glitzy categories.”
Today came comparably detailed statistics on multi-factor productivity in manufacturing – a broader measure of efficiency – and the results (for 2014, since multi-factor productivity takes longer to calculate) are at least as puzzling. The reasons are similar, too: They’re arguably strange enough, including over the long term, to warrant rethinking concepts like “advanced manufacturing.”
To recap, labor productivity tracks the amount of goods and services produced for each hour on the job by American workers. Multi-factor productivity looks at that same output-per-hour question, but measures the contribution of many other inputs as well, like capital and energy, and materials.
Because technology is so widely assumed to be the big driver of productivity – and multi-factor productivity in particular, you’d think that the list of 2014’s biggest winners in terms of annual growth would dominated by glitzy, tech-ie, futuristic type stuff. And how wrong you’d be!
Here they are, along with their specific 2014 figures:
magnetic computer drives: +7.4%
audio and video equipment: +7.3%
seafood product preparation & packaging: +7.1%
miscellaneous textile mill products: +6.2%
misc leather products: +5.6%
electric lighting +4.5%
household appliances +4.5%
misc furniture-related products: +4.5%
petroleum & coal products: +4.4%
basic chemicals: +4.1%
boilers/tanks/shipping containers: +3.1%;
textile & fabric finishing mills: +3.1%
Even the electronics items don’t scream “Silicon Valley!” It’s more like “computer hardware that mainly went to Asia long ago.” And what were the ten biggest productivity losers of 2013-2014?
tobacco processing: -9.8%
agricultural chemicals: -8.3%
miscellaneous transport equipment: -8.3%
ship & boat-building: -7.2%
apparel knitting mills: -4.9%
resin, rubber & artificial fibers: -4.4%
computer & peripheral equip: -4.3%
grain and oilseed milling: -3.5%
iron & steel mills: -3.1%
dairy products: -3.0%
communications equipment: -2.9%
household & institutional furniture: -2.9%
This list looks a little more as expected. But what’s communications equipment doing on it? That includes all the advanced internet gear. And iron and steel and resin are huge producers of high value goods.
Would looking at longer-term trends yield more comforting results? You be the judge. Here are the top ten performers when it comes to average annual multi-factor productivity growth between 1987 and 2014:
computer & peripheral equipment: +12.8%
semiconductors & electronic components: +9.6%
communications equipment +2.9%
audio & video equipment: +2.7%
magnetic computer drives: +2.1%
household appliances: +1.6%
miscellaneous transport equipment: +1.2%
coating/engraving/heat-treating metals: +1.3%
glass & glass products: +1.1%
electronic instruments +1.1%
tied at 1.0 percent: misc furniture-related products; motor vehicle parts; machine shops/threaded products; iron & steel mills; miscellaneous non-metallic mineral products; agricultural chemicals
It’s certainly good to see communications equipment and semiconductors up there. The rest? Not so sure about them.
The list of ten worse 1987-2014 annual averages seems even more sensible. Or at least much of it:
pharmaceuticals & medicines: -2.2%
cut & sew apparel: -1.9%
accessories/miscellaneous apparel: -1.7%
miscellaneous leather products: -1.1%
apparel knitting mills -1.0%
leather & hide tanning -1.0%
tobacco products: -0.9%
bakeries/tortilla products: -0.7%
paints, coatings & adhesives: -0.6%
textile finishing mills: -0.5%
You’re not alone, though, if you were stunned to see pharmaceuticals at the top of this list. That’s about as high-value and research-intensive as you get. And domestic producers face lots of foreign competition. At the same time, as I’ve noted in my posts on industries dependent on government subsidies, pharma benefits from gargantuan levels of public sector support for health care. Could there be some cause-and-effect working here?
Optimists can legitimately point out that these multi-factor productivity numbers are two years old. But overall manufacturing multi-factor productivity fell annually for three of the four years through 2014, and is actually down on net since 2005. Also bearish: Although it’s often (and not completely unreasonably) claimed that the growth of intangibles-based services industries make economy-wide productivity data suspect, no such complications should be plaguing the manufacturing numbers. Consequently, there’s a heavy burden of proof on bulls who claim that a turnaround on this critical front in the cards soon – much less that it’s already begun.