(What’s Left of) Our Economy: No JOLTS to the Low-Wage Recovery Story

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Employment, Great Recession, James Fallows, job openings, Jobs, JOLTS, manufacturing, manufacturing renaissance, recovery, The Atlantic, turnover, {What's Left of) Our Economy

One of those running-around days prevented me from commenting yesterday on the new U.S. government figures on labor force turnover. But since they’re a favorite indicator of Federal Reserve Chair Janet Yellen. and since last month’s figures contained a big surprise, the so-called JOLTS report for May is worth a close look.

First, that surprise. The April JOLTS figures (there’s a two-month time lag for this series) showed a startling 23.15 percent sequential jump in the number of job openings in manufacturing. Moreover, the 415,000 figure was the second highest of all time. The increase, which produced the second highest monthly total of all-time (JOLTS statistics only go back to 2000), convinced observer’s like The Atlantic‘s James Fallows that this long-time employment laggard was suddenly “creating too many jobs.”

As I noted last month, the number looked fishy because it contrasted with virtually everything else we’ve learned about manufacturing in recent years – along with many longstanding assumptions.

So it wasn’t entirely surprising to see that the new JOLTS report revised that April manufacturing figure down to 397,000 – still historically high, but no longer so stratospheric. Just as important, the May total (which is still preliminary), was 353,000. That’s healthy, but has been bested several times in the last decade and a half. Let’s hold off, therefore, on heralding the return of the manufacturing renaissance meme – which has never been justified in the first place.

Second, the May JOLTS figures strengthened claims – including by yours truly – that the current American economic recovery has featured entirely too much low-wage job creation. Since I last looked at this subject through the JOLTS lens, past figures have been revised. But they tell the same story, according to my methodology of taking the reported openings in the retail; and leisure and hospitality employment super-categories, and then adding a pro-rated figure I calculate for the low-paying administrative and support services sector of the generally high-paying professional and business services super-category.

When the Great Recession began, at the end of 2007, these low-wage portions of the economy accounted for 31.94 percent of all job openings. By the time the recovery began, their collective share fell to 28.38 percent. The (preliminary) level for May? It’s rebounded past the pre-recession level and climbed to 32.53 percent.

Employment figures like the JOLTS data have been strongly influencing the Federal Reserve’s decisions on whether to raise or lower interest rates – which in turn helps determine how fast and whether the economy will continue growing, at least in the near future. If the central bankers look at the above crucial JOLTS details, keep expecting the country to stay on its (incredibly) easy money course.

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(What’s Left of) Our Economy: Where’s the Renaissance (in Manufacturing)?

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automotive, chemicals, computer and electronics products, GDP, Great Recession, gross domestic product, inflation-adjusted growth, manufacturing, manufacturing renaissance, real GDP, recovery, {What's Left of) Our Economy

Understandably lost amid the outpouring of news about last Sunday’s terrible Orlando shooting has been the government’s release of one of my favorite annual data reports – on economic growth by state. Although it’s great to be able to use these figures to track the geography of the current economic recovery (and of the last recession), I’m mainly interested in them because they also provide the latest detailed data on manufacturing and how it’s been faring versus the rest of the economy. And the inescapable conclusion – these numbers aren’t the slightest bit renaissance-y.

According to these statistics, in 2015, domestic industry expanded at an inflation-adjusted rate of 1.32 percent. That’s slower than both the real growth of the entire economy (2.36 percent), and than manufacturing’s real growth in 2014 (1.61 percent).

A related (but less detailed by sector) group of figures – on state economic growth by quarter – enables us to track manufacturing’s story from the start of the Great Recession (the fourth quarter of 2007) to its end (the second quarter of 2009). They show that during the current recovery, the entire constant dollar gross domestic product (GDP) has increased by an historically feeble 13.22 percent. The comparable figure for manufacturing? It’s only slightly better: 13.33 percent.

As a result, at the start of the recovery, manufacturing’s share of the total economy, after inflation, was 11.92 percent. In the fourth quarter of 2015? 11.93 percent. Not much progress toward “re-industrialization” evident here. More revealingly, when the recession began, the manufacturing percentage of real GDP was 13.10 percent. That’s why, after inflation, manufacturing output in the United States still has not regained its pre-recessionary peak – and in fact, according to these data, is 1.31 percent smaller. This contraction is less dramatic than that shown in the Federal Reserve’s industrial production figures (which measure after-inflation manufacturing production on a monthly basis). But it’s hard to square the reality of nearly nine lost years in manufacturing with the renaissance claims.

The sector-by-sector results in the new government figures merit attention, too. For example, they show that, at least at the level of detail used by the government, America’s largest manufacturing industry is chemicals, with after-inflation production at just under $294 billion in 2014 (the latest data available for individual sectors). Next comes the sector that many folks might have thought is Number One – computers and electronics (just under $286 billion).

At the same time, the fortunes of these sectors have differed dramatically. Chemicals output shrank by 1.06 percent in real terms in 2014. Computer etc production rose by 2.98 percent. And since 2009 (not the precise duration of the recovery, but close enough), real chemicals production is down by 5.29 percent. Real computer and electronics output is up by 24.76 percent. (At this point, however, it’s important to remind that big questions surround the accuracy of the inflation-adjusted computer and electronics production.)

But honors as recovery growth champ goes to the automotive sector. Its real output has more than tripled since 2009 (after falling by nearly two-thirds between the recessionary years 2007 and 2009). The new manufacturing figures, though, also show how much momentum automotive has lost lately. In 2014, its real output inched up by only 0.39 percent – less than a fourth as fast as manufacturing overall.

The other manufacturing growth winners in 2014 included fabricated metal products; machinery; electrical equipment, components, and appliances; miscellaneous transportation equipment (which includes aerospace); furniture; miscellaneous manufacturing; textiles; apparel; printing; petroleum and coal products; paper; and plastics and rubber products. In most of these winners, however, growth in 2014 was slower than in 2013.

Other sectors that shrank in 2014 include primary metals (e.g., steel) – which grew strongly in 2013; wood products; and food, beverage, and tobacco products.

Early during the recovery, former Republican Speaker of the House John Boehner famously asked President Obama, “Where are the jobs?” Pretty soon after, they began reappearing. By contrast, years after the first predictions, folks asking “Where’s the manufacturing renaissance?” are still waiting.

(What’s Left of) Our Economy: U.S. Manufacturing’s Recessionary Hole Just Got Deeper

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durable goods, Federal Reserve, Great Recession, inflation-adjusted growth, manufacturing, manufacturing renaissance, non-durable goods, recession, {What's Left of) Our Economy

The Federal Reserve has just delivered a major body blow to American domestic manufacturing – not from any supposed monetary policy missteps, but from the annual revision to its manufacturing production data. According to the new numbers, released April 1, domestic industry’s inflation-adjusted growth both recently and since the current economic recovery began have been much weaker than previously estimated. In fact, the revision shows that U.S.-based manufacturing has lost nearly four times as much production ground since the last recession broke out than even the prior downward revision revealed.

The revisions go back to 2011, and although I could not find the previous manufacturing production totals for that year, I do have them for the 2012-15 period. Here’s how the old and new annual real growth data for overall manufacturing for those years compare. (These and the subsequent year-on-year figures are the December-December figures, not the fourth quarter-fourth quarter figures presented in the Fed’s summary release.)

                       Old                      New

2014-15   +0.46 percent       -0.18 percent

2013-14   +4.92 percent      +2.52 percent

2012-13   +2.47 percent      +0.08 percent

2011-12    +4.37 percent     +2.65 percent

Crucially, these revisions show a year-on-year decline in constant-dollar American manufacturing output over the last full-year period. The most common definition of a recession is two straight quarters of falling gross domestic product (GDP). But even though during 2015, real manufacturing production rose sequentially during several months, the sector’s overall shrinkage over four quarters can reasonably be seen as recessionary. Moreover, that manufacturing recession actually lasted even longer – since the cumulative after-inflation production decrease began in November, 2014.

The good news: real manufacturing output rose again on month this January and February, according to the Fed. (The February figure is still preliminary.) So the sector’s last recession is over for now. New industrial production – bringing the story up to March – will be released this Friday, April 15.

Both durable goods and non-durable goods production figures were lowered in the new Fed revisions. For the former, 2014-15 real output was reduced from essentially no growth to a 0.78 percent decline, and 2013-14’s 5.36 percent inflation-adjusted production rise is now judged to have been 3.56 percent.

For non-durable goods, 2014-15 constant-dollar production growth was nearly halved – from 1.02 percent to 0.52 percent. And the previous year’s increase was more than halved – from 2.84 percent to 1.35 percent.

And whereas the previous Fed data show that overall real U.S. manufacturing output was still 1.07 percent lower than at the last recession’s onset in December, 2007, the new figures peg the gap at 3.96 percent – nearly four times larger.

In the world of fast-buck consultants and spin-happy politicians, this sorry record has often been called a “manufacturing renaissance.” In the real world of output, jobs, and wages, it’s called nine lost years – and counting.  Put differently, manufacturing’s Great Recession is still far from over.

(What’s Left of) Our Economy: Real Wages Still Sluggish on Eve of Key Fed Rate Decision

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automotive, Federal Reserve, inflation-adjusted wages, interest rates, manufacturing, manufacturing renaissance, real wages, wages, {What's Left of) Our Economy

The Federal Reserve, which insists that its decisions on interest rates are strictly “data dependent,” today starts a monthly meeting that’s expected to produce an announcement of a small rate hike. If the central bank approves the first increase from the current zero level since December, 2008, it’s hard to imagine that wage data will bear any responsibility. This morning’s figures from the Bureau of Labor Statistics show that it’s as remote a possibility as ever during the current weak recovery.

On a monthly basis, private sector wages adjusted for inflation in November inched up by 0.09 percent. That’s slower than the unrevised 0.19 percent increase in October, and the worst monthly performance since such wages fell by 0.38 percent in June.

The year-on-year numbers, which economists take more seriously, mock the wage inflation claims, too. On a November-to-November basis, constant dollar private sector wages rose by 1.83 percent – much slower than October’s 2.42 percent. These latest annual figures are indeed better than those for the previous Novembers (up 1.74 percent from 2013-14, and 1.06 percent between 2012 and 2013). But at that time, the worries (rightly) centered on wage stagnation, so count me unimpressed.

In addition, the November yearly change continues a dreary recent pattern of real wages slowing down almost as soon as they show any signs of significant pickup. For example, year-on-year inflation-adjusted wage gains hit their 2015 peak so far in January, at 2.43 percent. This rate then decelerated, “sped up” to 2.42 percent in April, and then slowed again before the better October advance.

And since the current recovery officially began, in real wages have risen by only 2.71 percent in toto. That’s a more than six-year stretch.

But maybe the news for manufacturing workers is better, since President Obama and others keep telling us that American industry is enjoying or verging on an historic renaissance? As they say in those rental car commercials, “Not exactly.” In fact, manufacturing again strengthened its reputation as a national wage laggard.

The best manufacturing-related development came for the October data. The sector’s after-inflation monthly wage change was revised up – to zero – from a previously reported dip of 0.09 percent. But according to the November report (whose data is still preliminary, as is the case for the October results), real manufacturing wages flat-lined again sequentially last month. Moreover, these two back-to-back goose eggs were the worst manufacturing real wage results since June’s 0.47 percent monthly decline.

Manufacturing wages do show a pickup on an annual basis. Since last November, they’ve advanced in real terms by 1.61 percent, much faster than the barely detectable 0.28 percent between the previous two Novembers and the 1.16 percent rise from November, 2012-November, 2013. But the latest October annual increase was two percent even, so even this good news needs to be qualified. And since the current recovery began more than six years ago, inflation-adjusted manufacturing wages have actually fallen by 0.19 percent.

Curiously (or not?), this ongoing manufacturing wage weakness has been even more pronounced in the still booming automotive sector. For workers producing motor vehicles and parts, real wages fell sequentially in November for the fourth straight month (by 0.38 percent). In fact, they’re down on net since January, with much of a big August spurt now offset.

Automotive wages after inflation have been rising year-on-year, but since November, 2012-13, the rate has slowed from 2.07 percent to 0.96 percent to this year’s 0.57 percent. All told, adjusting for inflation, automotive wages have decreased by 3.92 percent during this six-plus-year-old recovery.

None of this is to suggest that there’s no inflation anywhere in the U.S. economy, or that the Fed should or shouldn’t hike rates. (Here are my views on that.) But it does suggest that, just as some used to claim that the information technology revolution can be seen everywhere except in the productivity statistics, if you’re seeing inflation in America today, you’re sure not looking at workers’ paychecks.

(What’s Left of) Our Economy: Is the Bell Tolling for Manufacturing Bellwether Machine Tools?

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AMT, Association for Manufacturing Technology, Douglas K. Woods, machine tools, manufacturing, manufacturing renaissance, {What's Left of) Our Economy

Is there a catchy word for “super bearish”? If so, two good reasons have just emerged for using it to describe the prospects of the American manufacturing sector. The first is the October report on machine tool orders just released by the sector’s main trade group, the Association for Manufacturing Technology (AMT). The second is the set of accompanying comments from AMT President Douglas K. Woods – who until now has remained relentlessly optimistic in the face of increasingly rotten data.

Machine tools are a small part of the overall U.S. manufacturing base. But they’re a prime indicator of the entire sector’s health because they’re used to make most other manufactured products. In other words, if American industry is buying lots of machine tools, that means it’s going to be turning out lots of goods. That’s also usually good news for the economy as a whole, because if these industrialists are right, that means demand for these goods – including abroad – is robust, along with the odds of growth. But if American manufacturers – and their foreign counterparts – are cutting back on machine tool purchases, you can probably turn all those above sunny assumptions on their heads.

As a result, the October numbers look incredibly discouraging. The big problem isn’t the month-to-month change. New orders only fell by 0.3 percent sequentially in value, after rising by 10.9 percent in September. At the same time, in July and August, orders fell on month. Still, the big problem has to do with the longer-term comparisons. This October’s machine tool orders were 28.3 percent lower than last October. September’s new orders were 49.6 percent lower than they were 12 months earlier. August, 2015’s new orders were 21.2 percent lower than August, 2014’s.

In fact, for the first ten months of this year, orders of U.S.-made machine tools were running 17.4 percent behind last year’s ten-month rate, which means that the rate of deterioration has been accelerating. The solid line in the AMT chart below illustrates the trend. You can see that the three-month moving average for orders, which smooths out short-term fluctuations, is at four-year lows:

Even Woods sounded depressed. He greeted the September year-on-year collapse by noting that these comparisons were distorted by a surge in orders a year before because of all the sales generated by the sector’s big trade show. Woods then added

“Considering the growth in orders we’ve seen over the past two years, this decline is not as bad as it sounds. It’s important to remember that 2014 was a record-setting year, and that some leveling off to minor pull backs are expected.”

Contrast that with Woods’ assessment of October:

“While the general economy continues to grow at a moderate pace, the manufacturing sector is struggling with the effects of a strong dollar, reduced commodity prices, especially oil, and struggles in key export markets like China. As the broader industry faces this slowdown, manufacturers are not making significant capital investment in new manufacturing technology.”

Nor is he optimistic about the foreseeable future: “Market flatness can be expected to remain into 2016, and signs pointing to short-term interest rate hikes from the Federal Reserve could potentially hamper the consumer spending that is currently driving economic growth.”

Not that AMT didn’t see a little ray of sunshine, calling “the second-consecutive monthly increase in order volumes, an encouraging detail in what has been a 15-month stall in overall growth for the manufacturing technology sector.” But you have to admit: That’s pretty thin gruel. And it’s especially disturbing because Wood’s predisposition doesn’t come out of the blue. He has surely been hearing encouraging sentiments from his organization’s members, who no doubt consistently display the can-do attitude that I’ve always found characteristic of American industrialists, despite the most daunting challenges.

That kind of grit has long helped domestic manufacturers – and especially the kinds of smaller companies common in the machine tool sector – overcome much of what clueless American policymakers and predatory foreign rivals have thrown their way. If these dogged manufacturing spirits are indeed eroding, domestic industry will be lucky to keep treading water, much less spark a renaissance.

(What’s Left of) Our Economy: More Measures of U.S. Manufacturing Weakness

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Business Employment Dynamics, Census Bureau, consolidation, Great Recession, IndustryWeek, Labor Department, manufacturing, manufacturing renaissance, mergers, Michael Collins, takeovers, {What's Left of) Our Economy

RealityChek has looked at U.S. domestic manufacturing’s health through the lenses of employment, wages, output, trade balances, and productivity. All have revealed a pretty dismal picture these days. But since manufacturing renaissance claims still persist, here are two other indicators that strongly suggest that the sector is hardly in a golden age – the numbers of manufacturing establishments and firms in America.

Among those who closely follow the sector, it’s widely recognized that there’s been major shrinkage in the number of manufacturing establishments in America since the early 1990s. But that number has always been a little fuzzy, because “establishment” can mean “individual facility.” Since manufacturing’s efficiency has kept growing for most of this period, fewer establishments could partly, or mainly, mean that companies are simply closing factories or other assets that are no longer needed to maintain or even increase output levels.

Luckily, surfing around U.S. government data sites today, I’ve found two statistical series that allow more definitive conclusions to be drawn. The first comes from the Labor Department, and consists of figures on establishment births and deaths by industry that are part of the Business Employment Dynamics data I used recently to shed new light on manufacturing employment. As suggested by the name, establishment “deaths” don’t come back to life whereas “closing” decisions can be temporary for a variety of reasons – including seasonal fluctuations in demand and work flow. Deaths can still stem from greater efficiency, too, but logically more of them reflect declining fortunes in the sector.

The first full year for these figures is 1994, and the most recent numbers are from the first half of last year. What they show is that 67,000 more manufacturing establishments died than were born during this period. The Great Recession of course took a major toll. Between 2007 and 2009 alone, 18,000 of these deaths took place. But domestic manufacturing has also been in the red in this regard ever since. And although establishment deaths actually have been at historically low levels in the last few years (bottoming at 21,000 in 2012 and 2013), so have establishment births. Moreover, they sunk to 20,000 in 2009 and have remained there ever since.

Just as important, establishment deaths have exceeded births throughout the current recovery. To be sure, the situation was even worse during the last recovery. But that expansion of course turned out to be a humongous economic bubble, and no one was claiming that American industry was in the best of health then.

A Census Bureau series with birth and death figures at the firm level within manufacturing tells an even grimmer story. The death of companies is much less likely to be a sign of greater efficiency than even the death of establishments, since dead companies aren’t going to be reopening their facilities. These Census statistics date from 1977 and run through 2013. They show that in that first data year, 259,982 manufacturing companies were in operation in the United States. These ranks peaked at 302,306 in 1996, but as of two years ago, stood at only 230,708. And as with the establishment births and deaths numbers, the number of companies kept on shrinking once the last recession ended (in 2009) – from 250,707.  And shortly afterward the manufacturing renaissance was first forecast.

There is one possible mitigating factor here. A fascinating article in IndustryWeek last June called attention to the growing trend of consolidation in manufacturing. Manufacturing firms merging with or acquiring each other, or combining with non-manufacturing firms, would obviously reduce the number of industrial companies without indicating any loss of dynamism or competitiveness.

According to numbers presented by author Michael Collins, from the late 1940s till the onset of the last recession in 2007, ownership concentration in manufacturing has increased more than seven-fold. And these concentration levels really began taking off in the mid-1980s, once changes in financial regulation fostered a wave of corporate takeovers by greatly encouraging the use of debt and leverage. Collins doesn’t present any such data for this recovery, but it’s likely this trend has continued given how the Federal Reserve’s easy money stimulus policies have kept interest rates at historic peacetime lows.

So the shrinkage in manufacturing firm numbers due to business failure needs to be teased out from the number due to consolidation, and as a result, these decreases could still be consistent even with claims of an historically healthy U.S. manufacturing sector. But that’s a case that the manufacturing renaissance crowd still needs to make.

(What’s Left of) Our Economy: Evidence that Manufacturing Job Gains Have Been Overstated

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Business Employment Dynamics, Great Recession, Jobs, Labor Department, manufacturing, manufacturing renaissance, non-farm payrolls, recovery, {What's Left of) Our Economy

Last week, I reported on a set of U.S. government jobs statistics that were new to me, and that painted a decidedly bearish picture of the American employment scene and indeed of the entire economy’s chances of avoiding a recession in the near future. Since then, I’ve learned two other important facts about this data series, which is called the Business Employment Dynamics (BED) series.

First, although it comes out quarterly, and with a two-three-quarter lag, it’s based on a sample more than ten times bigger than that used by the Labor Department’s main jobs statistics – the non-farm payrolls (NFP) numbers that come out in the form of breathlessly followed monthly reports. Second, according to the BED, manufacturing’s jobs gains during the current recovery have been even weaker than described by the NFP numbers. (So, by the way, is overall job creation, at least per the latest first quarter, 2015 BED figures.)

The ongoing recovery began in mid-2009, so for convenience’s sake, let’s look at the annual data from 2010 on. According to the NFP figures, on a December-to-December basis, from 2010 through the end of last year, domestic manufacturers added a net of 706,000 jobs. If you go January-to-January, the number is just 642,000. But both figures are higher than the comparable BED total of 628,000.

For the first quarter of 2015, moreover, the NFP numbers tell us that domestic manufacturers generated 26,000 net new jobs on a December-to-March basis, and 9,000 on a January-to-April basis. But the BED data reports that they generated no net new jobs at all during this period.

At least as interesting, according to the BED figures, gross manufacturing job gains of 385,000 in the first quarter of this year represented the lowest quarter total since the second quarter of 2009 – when the Great Recession ended and the sector on net was still hemorrhaging jobs. But the 385,000 job loss figure was pretty standard for the recovery once its early days of strong manufacturing snap-back from an historic recessionary dive had passed.

In theory, subsequent BED reports will reverse the pattern so far and reveal manufacturing employment figures more robust than those in the NFP reports. But if they don’t, it’s clear that all those claims of an historic American manufacturing renaissance will look farther off the mark than ever.

(What’s Left of) Our Economy: Another New Low for U.S. Manufacturing

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durable goods, manufacturing, manufacturing renaissance, non-durable goods, real value-added, {What's Left of) Our Economy

Economic data from the government comes out at such a frantic pace during the beginning (and the end) of months that it’s easy to overlook some real gems. So I’m relieved that less than a week has passed since the Commerce Department published its latest figures on manufacturing output. The news, as has typically been the case lately, is bad for manufacturing renaissance cheerleaders. In fact, they reveal a new all-time “worst.”

This latest report, which came out last Thursday, shows us how manufacturing production has been faring both on its own terms and in relation to the rest of the economy according to a measure called real value-added. As suggested by the name, it adjusts for inflation. And many economists believe it’s especially accurate because it tries to avoid the double-counting that occurs with other gauges that tend to count parts and components more than once – when they’re originally produced, and when they become inserted into larger assemblies and even final products. Moreover, for the first time, Commerce has (separately) released figures that show manufacturing’s performance at an impressive level of detail.

As these figures reveal, real manufacturing-value added as a whole grew more slowly than overall inflation-adjusted economic output in the second quarter of this year – by a whopping 3.90 percent to 0.70 percent. Consequently, manufacturing’s after-inflation growth has trailed that of the rest of the economy for five out of the last six quarters. The sector has fared no better on an annual basis. Although in 2013, it matched the meager 1.50 percent real output rise registered by the entire economy, in 2014, manufacturing lagged by 2.40 percent to 1.60 percent.

This dreary performance means that, so far through 2015, manufacturing real value-added as a share of the economy has sunk to 11.74 percent in the first quarter and 11.65 percent in the second. If these numbers hold, this measure of manufacturing’s economic role will have hit its lowest level since these data started being kept – in 1997. Almost as important, judging from real-value added, manufacturing is an even smaller part of the entire economy than during the bubble decade – which few would call a golden age for domestic industry.

The new more detailed sector-specific figures show, at the broadest level, that since the economic recovery began in mid-2009, durable goods value added after inflation is up 36.03 percent – considerably faster than the 27.44 percent growth of manufacturing overall. Non-durable goods real value-added takes up the rear – growing during the recovery by only 18.58 percent. That tracks with the Federal Reserve’s industrial production index, which measures production and does engage in that double counting.

But what veer big-time from the index are the more detailed figures. For example, the manufacturing rebound that has taken place during the recovery has been spearheaded by a strong showing in the automotive sector. Yet that industry’s real value-added growth since 2012 (the farthest back these statistics go, has been only a total of 8.78 percent. That’s far below that of manufacturing’s leader – the primary metals sector. It’s after-inflation value-added is up 27.52 percent during this time. And next comes petroleum and coal products, where such output has risen by 21.91 percent. (These real value-added figures are additive within manufacturing, and within the major durable goods and non-durables categories.)

Manufacturing’s worst value-added performer? The big machinery sector, where real value-added has fallen by 8.96 percent. Next comes the small wood products industry, where it’s shrunken by a much slower 3.36 percent rate.

Throughout this presidential campaign, voters will no doubt be treated to a seemingly endless series of film clips and photos of candidates visiting factories, often wearing hard hats and safety goggles, shaking workers hands and proclaiming how determined they are to strengthen American industry. I wonder how many of them will have combed through this new manufacturing data, which makes clear that success will require much more than campaign promises.

(What’s Left of) Our Economy: New Productivity Figures Remind That Manufacturing Matters

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labor productivity, living standards, manufacturing, manufacturing renaissance, multi-factor productivity, productivity, wages, workers, {What's Left of) Our Economy

The new labor productivity numbers issued by the Labor Department this morning underscore why it’s so discouraging that domestic U.S. manufacturing is in the doldrums again – and in fact in a technical recession. Because the new figures show that manufacturing has regained its longstanding status as America’s labor productivity growth king after briefly losing it. Oddly, however, the same productivity report provides another reminder that manufacturing’s status as America’s king in pay growth is gone.

According to the new first look at labor productivity in the third quarter, by this measure of efficiency, all of America’s non-farm businesses (the Labor Department’s universe of American businesses) improved by 1.60 percent at an annual rate over the second quarter. That’s pretty low by historical standards, buttressing growing claims that the nation’s productivity performance has been lagging lately. But the second quarter growth figure was revised up from a much better 3.30 percent to a better still 3.50 percent.

(Remember – labor productivity is one of two productivity measures tracked by the government. It gauges output nationwide, and by different sectors of the economy, per total hours worked. The other productivity measure is multi-factor productivity. As its name suggests, it examines a much broader range of inputs, including capital, energy, and materials. Another big difference – the labor productivity numbers come out each quarter, but the multi-factor productivity data take a good deal longer to calculate.)

By contrast, labor productivity in manufacturing between the second and third quarters zoomed up at a 4.90 percent annual rate. That’s by far the best such result since the 6.60 percent recorded in the first quarter of 2011, much earlier in the current economic recovery, when such strong gains tend to be par for the course because they follow declines or very slow growth during recessions. This result was so good that it overshadowed the downward revision to manufacturing’s labor productivity growth during the second quarter. That figure, originally pegged at 2.30 percent, is now judged to have been 2.10 percent. And significantly, it unusually trailed the productivity growth for the economy as a whole.

Year-on-year, manufacturing’s relative labor productivity performance looks even better. From the third quarter of last year to the third quarter of this year, manufacturing labor productivity increased by 1.50 percent. That’s also low historically speaking, but it’s much faster than the rounding-error 0.40 percent growth registered by all non-farm businesses. In the second quarter, manufacturing held the edge here, too, but it was narrower – 1.00 percent versus 0.80 percent.

The real hourly compensation statistics published along with the productivity numbers tell a much different story, however. On a quarter-to-quarter basis, the growth of manufacturing’s inflation-adjusted pay did leave that of non-farm businesses in the dust – by 4.20 percent to 1.40 percent. But year-on-year, even though manufacturing outperformed the rest of the economy productivity-wise, too, its real pay gains lagged – 1.80 percent versus 2.20 percent.

In fact, since the last recession ended, in the second quarter of 2009, non-farm business labor productivity has grown by a total of 6.94 percent, and its after-inflation compensation is up 2.15 percent – which certainly supports the widespread view that American workers haven’t enjoyed enough of the benefits of working better. But in manufacturing, the situation has been even worse for workers. Its productivity is up 24.97 percent. But its real compensation has actually fallen – by 1.41 percent.

As I’ve written consistently in my productivity posts, both labor and multi-factor productivity are subjects where even normally supremely confident economists often fear to tread, and many critics charge that the U.S. government figures grossly understate America’s performance – and even that the mis-measurement keeps worsening. I haven’t examined these accusations completely enough to decide if they’re on target. But given the vital role played by productivity growth in fostering higher living standards on a sustainable, not bubbly, basis, if the Labor Department’s findings are even remotely accurate, they’re warning that fostering a real renaissance in America’s productivity-leading manufacturing sector is more important than ever.

(What’s Left of) Our Economy: RIP, Manufacturing Renaissance – & Reshoring – Claims

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Asia, China, competitiveness, Deloitte, investment, local content, Manufacturers Alliance for Productivity and Innovation, manufacturing, manufacturing renaissance, MAPI, Mexico, multinational corporations, North America, Obama, offshoring, reshoring, TPP, Trade, Trans-Pacific Parternship, {What's Left of) Our Economy

Because manufacturers (and others) don’t always do what they say, surveys of their intentions on hiring and investment and the like should always be taken with a big boulder of salt – the more so since the questions are often asked and the answers given in a political and policy context. So when one of these surveys clashes with manufacturing reshoring and renaissance claims that America’s most powerful manufacturers – the offshoring multinationals – have been energetically pushing, they deserve special attention. That’s why it’s worth looking closely at a new sounding on where new factories are likely to be built from a major consulting firm and a leading manufacturers association.

As the nation has heard endlessly from the biggest names in American industry and their witting and unwitting political dupes, U.S. domestic manufacturing is either enjoying an historic comeback, or is on the verge of one. These boasts and predictions have become a little less common lately, as manufacturing data keeps disappointing, but they haven’t been recanted or simply dropped because they serve two powerful purposes.

First, at a time of continued U.S. economic weakness, contentions that American-owned manufacturing firms are boosting their U.S. production and employment counter fears and accusations that they have abandoned their home country wholesale. Second, a crucial feature of these renaissance claims – that China’s competitiveness has faltered so dramatically that American industry is actually abandoning the PRC and returning stateside – helps the multinationals defend the offshoring-friendly trade deals they worked so hard to pass by indicating that they did little, if any, long-term harm to the U.S. economy despite critics’ accusations.

It’s hard, however, to read the Footprint 2020 study just released by Deloitte and the Manufacturers Alliance for Productivity and Innovation (MAPI), and take any of the above seriously for one minute longer.

Take the reshoring narrative so central to the renaissance story. According to the Deloitte-MAPI report, “reshoring is a real phenomenon.” But get a load of this kicker: “[A] common misconception is it represents a return of previously offshored operations to US soil. In practicality, reshoring may include returning operations to Mexico. This offers greater access to the US market, but allows companies to maintain advantageous operating cost structures. Sixty-six percent of survey respondents offshored their operations in the past 20 years, and a third are now considering bringing them back to North America. These moves focus on primary production and assembly operations currently located in China, India, and/or Brazil. Mexico is the first choice destination to re-shore operations, followed by the US.”

To be fair, there is a respectable argument made that even reshoring (and other) investment in Mexico helps domestic U.S. industry, too. The supposed reason: Manufactured goods made in Mexican factories, especially if they’re owned or related to American firms, use much more in the way of Made in the USA parts and components than similar products made in Asia and elsewhere.

But this argument overlooks the reality that the U.S. content of America’s imports from Mexico has been falling, and that this trend will accelerate if Congress approves the Pacific Rim trade deal just concluded by the Obama administration. That Trans-Pacific Partnership (TPP) will make it easier for countries like Japan to send more goods, like automobiles from Mexican assembly plants into the United States that contain more parts and components from outside Mexico and “North America.”

The idea that investing in Chinese manufacturing doesn’t make much sense nowadays also takes a body blow from Footprint 2020. The study found that 98 percent of the companies surveyed plan to expand operations in countries where they’re already in business, either through adding on to existing facilities, or by opening new factories or labs or warehousing and distribution centers. The country that will get the biggest share of this new capital? China. (The United States is second.) Moreover, between the 2002-2007 period (before the financial crisis struck) and the 2010-2015 period (when the American manufacturing renaissance was supposed to have taken off), “North America’s” appeal to American-owned companies increased only slightly, while “Asia’s” (meaning largely China) nearly doubled.

Of course, for literally years, manufacturing renaissance claims have been steadily punctured by the most authoritative data available on production, trade balances, productivity, and wages. With hitherto cheerleading multinational manufacturers themselves now throwing cold water on this idea, too, it’s legitimate to wonder whether domestic industry is closer to suspended animation than to rebirth.