Granted, the Labor Department’s latest detailed data on American manufacturing productivity isn’t as exciting as the news about President Trump’s firing of FBI Director James Comey. But if you attach any importance to the future of the U.S. Economy, you need to pay attention. For these figures simply trash the standard claims that American manufacturing is in great shape except for its workforce, which is steadily being replaced by labor-saving technologies and brilliant management innovations.
We already know that manufacturing productivity has slowed to a crawl in recent years. That’s been true both on the labor productivity front (the data that comes out on the timeliest basis, which measures output per hour worked) and on the multi-factor productivity front (the figures that take longer to calculate, and that measure how much output results from a broad range of inputs). What the new statistics reveal is that its sluggishness may not be the most worrisome aspect of manufacturing’s labor productivity lately. For the quality of that productivity growth has been very low quality, too.
By high quality labor (or multi-factor) productivity growth, I mean better efficiency that’s accompanied by more output. That’s the kind of productivity growth that the conventional wisdom apparently assumes domestic manufacturing has been generating. Low quality productivity growth means that better efficiency is taking place while output is shrinking. When we’re talking about low quality labor productivity growth, we’re talking about industries that are getting less efficient while turning out fewer goods. And that description applies to exactly half of the categories used to classify American manufacturing at the most detailed level that’s commonly used by the government.
The new Labor Department report tracked labor productivity, output, and a variety of related performance indicators for 86 manufacturing sectors. Exactly 16 managed to boost both their labor productivity and inflation-adjusted output in 2016. One sector grew in real terms with no improvement in labor productivity (motor vehicle bodies and trailers). But fully half – 43 – recorded falling productivity and falling output. The rest were judged to have either become less productive while growing after inflation, or more productive while contracting in real terms.
Moreover, as was the case the previous year, the lists of winners and losers aren’t what you’d expect. In the former (higher productivity and price-adjusted growth) we see for example fabric mill products; saw mill products; petroleum and coal products; lime and gypsum products; iron and steel mill products; miscellaneous non-ferrous metals; and paints, coatings, and adhesives. Rightly or wrongly, few would make many rosters of “industries of the future.”
Other high quality labor productivity industries appear less surprising – like computers and parts, plastics resins, and agricultural chemicals (the best performer when you add up productivity and output growth). But can you really imagine an American president rewarding any company in the latter category with a factory visit?
The list of low quality labor productivity industries is at least as surprising. It includes pharmaceuticals and medicines, metal working machinery (which contains machine tools and related products), turbines and power generation equipment, motor vehicles (the sector whose growth has led the manufacturing comeback for most of the current economic recovery), semiconductors and electronic components, and aerospace products. The worst performer on a combined basis was audio and video equipment.
Overall, only 27 of the 86 manufacturing sectors surveyed improved their labor productivity last year, whether they expanded output or not. Fifty nine suffered labor productivity declines and, again, labor productivity among motor vehicle body and trailer makers flat-lined.
A final point: Never forget that, if anything, these bleak results are probably overstating American manufacturing’s productivity performance. For the Labor Department states that the offshoring of manufacturing production has boosted industry’s labor productivity figures by more than 20 percent annually between 1997 and 2006. (Here’s a layman’s explanation.) Apparently, the Department hasn’t examined the situation for later years, but it’s tough to avoid concluding that, if the nation is serious about solving its manufacturing productivity problem, ending the longstanding offshoring focus of U.S. trade policy would be a great place to start.