(What’s Left of) Our Economy: It’s Still the Same Old (Dreary) Story for Real U.S. Manufacturing Wages

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inflation-adjusted wages, manufacturing, manufacturing wages, private sector wages, wages, {What's Left of) Our Economy

Could anything be more revealing about the recent situation with America’s manufacturing wages than this development? Adjusted for inflation, industry’s wages were flat on a year-on-year basis. And that was their best such performance since July, 2017, when they rose by 0.65 percent over July, 2016’s levels.

Not that the news reported last Friday by the Bureau of Labor Statistics (BLS) was all bad for manufacturing workers. In December, their real wages increased by 0.28 percent on month – a pretty good performance by recent standards. Yet even that improvement represented a slowdown over the November sequential advance of 0.37 percent. (Both these monthly numbers are still preliminary.)

Moreover, not even the welcome advances of these last two data months was enough to lift manufacturing out of a long real wage recession. Price-adjusted hourly pay for its employees is still down a cumulative 0.28 percent since March, 2016.

In addition, the December data still left manufacturing a serious real wage laggard when compared with the private sector economy as a whole. (BLS doesn’t include government workers’ wages in these reports, since their wages are set by politicians’ decisions, not market forces, and therefore say almost nothing about the fundamentals of the U.S. labor market.)

Month-on-month, inflation-adjusted private sector wages advanced by 0.46 percent – their biggest such increase since the 1.05 percent spurt of January, 2015, and a much bigger increase than in after-inflation manufacturing wages.

On an annual basis, constant dollar private sector wages in December were up 1.12 percent – the strongest such rise since September, 2016’s 1.13 percent and, again, a much larger improvement than for real manufacturing wages.

And adding insult to injury, the gap between inflation-adjusted wages in manufacturing and in the private sector overall keeps widening. From the beginning of the current economic recovery (June, 2009) to last month, after-inflation private sector wages were up 7.24 times more (5.43 percent) than price-adjusted manufacturing wages (0.75 percent). As of the previous December, the gap was 5.69-to-one, as real private sector wages had risen by 4.27 percent, and real manufacturing wages had improved by the same 0.75 percent.

(What’s Left of) Our Economy: Manufacturing Should Indeed be a US “Obsession”

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Binyamin Appelbaum, Donald Trump, Federal Reserve, innovation, manufacturing, manufacturing production, manufacturing wages, multi-factor productivity, multiplier, productivity, research and development, STEM workers, The New York Times, Trade, Trade Deficits, {What's Left of) Our Economy

You have to give New York Times economic correspondent Binyamin Appelbaum credit. He decided to go the flood of recent media attacks on trade policy critics one better by not only charging that Republican presidential candidate Donald Trump and others are economic know-nothings, but belittling them for an ignorantly nostalgic focus on American manufacturing. Less admirable – Appelbaum’s decision to broach the subject before learning anything important about it, or much of the broader economy.

In an October 4 Times Magazine article, Appelbaum repeated standard claims that American politicians’ “obsession” with manufacturing misses the mark because the sector is doing better than ever, and because its only major problem is actually a sign of progress – its falling payrolls reflect higher productivity, and thus outstanding technological progress. His new wrinkle: a contention that U.S. leaders should spend less time trying to revive manufacturing employment (and wages, which have lagged badly, too?), and more on turning the low-wage service sector jobs into family wage jobs.

But Appelbaum’s own assessment of manufacturing badly misses the mark. His claim of record output, for example, is belied by Federal Reserve data clearly showing that industry’s output is down 4.45 percent in real terms since the Great Recession started – more than eight years ago. Nor does Appelbaum seem familiar with the productivity figures. They show manufacturing’s performance stagnating recently by the broadest measure (multi-factor productivity).

Industry’s record in international trade is another flag that’s at least deep orange. Manufacturing keeps racking up record annual trade deficits, and yesterday’s U.S. government figures revealed that August saw the latest in a string of monthly record shortfalls. These trade balances matter because standard trade theory teaches that one of international commerce’s main virtues is fostering the best possible international division of labor. By its logic, America’s failure to produce anywhere near as many manufactures as it consumes – including in numerous high-value industries like semiconductors, advanced telecommunications gear, pharmaceuticals, construction equipment, machine tools, and ball bearings – unmistakably signals that such activity has a grim future in the United States.

And if such pessimism is warranted, the entire American economic picture will look grim as well. For no other sector appears poised to replace manufacturing as the nation’s productivity growth champ. And it’s hard to identify major new employment prospects for science and technology workers if manufacturing continues stagnating (at best). After all, the sector conducts 70 percent of the private sector’s research and development, and its STEM workers comprise 60 percent of the national total.

Moreover, this funding and these workers seem to be doing an awfully good job on the innovation front, as they generate nine out of every ten U.S. patents.

But perhaps strangest of all is Appelbaum’s call for downplaying efforts to foster manufacturing employment and dramatically raising the wages and improving the living standards of America’s fast-food workers, home healthcare aides and the like via government fiat. At least he recognizes that such steps will have nothing to do with the free market principles so widely used to justify laissez-faire approaches to manufacturing’s woes. But why does he evidently suppose that productivity improvements and especially technological innovation won’t displace many of these jobs, too, especially if employment costs get high enough? And what kind of formula for boosting national competitiveness – and therefore hopes for longer term, sustainable prosperity – would this be?

Ironically, promoting domestic manufacturing looks like the best, most market-friendly way to help these low-wage workers, too. For the sector boasts the economy’s greatest multiplier effect for overall economic activity (which by definition creates new jobs) and one of the largest for employment itself. In other words, manufacturing punches far above its weight in generating new jobs throughout the rest of the economy (e.g., in transportation, construction, retail, and wholesale). Even better, most of these sectors already pay considerably more than those singled out by Appelbaum – and without new government props.    

(What’s Left of) Our Economy: Wage Inflation Claims Just Became Sicker Jokes Than Ever

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inflation, inflation-adjusted wages, manufacturing, manufacturing wages, private sector, real wages, wages, {What's Left of) Our Economy

The Labor Department’s July inflation-adjusted wage figures came out this morning, and for a change, the biggest new development (at least IMO!) isn’t on the month-to-month front, the year-to-year front, or even the trend-since-the-recovery-began front (though all of these numbers once again trash the idea of any major wage inflation taking hold in America).

Instead, the big news looks like the fact that, as of last month, real wages for the private sector have experienced their worst six-month stretch since the March-September, 2011 period. That was nearly four years ago!

Back then, wages after inflation for the private sector dropped by 0.58 percent cumulatively. Since this past January, they’re down by 0.47 percent on the same basis.

Moreover, manufacturing wages tell the same story. On a constant dollar basis, they’re now in their worst six-month stretch since July, 2012 through January, 2013. Back then, real manufacturing wages sank by 0.86 percent on net. Since this past January, they’re off by 0.56 percent.

Not that the bad news, as suggested above, stops there. Real private sector wages actually rose in July by 0.10 percent. That meager advance, however, was the best performance since January. The 1.94 percent year-on-year increase was better than June’s 1.75 percent. But it was the second worst since last December. It’s also true that this July’s annual real wage gains were much better than those of the last few Julys. Yet that’s only because those annual real wage increases were practically nonexistent – and from 2010 to 2011, these wages actually decreased.

And don’t think that the real wage picture brightens when you examine the trends during this economic recovery – an especially important indicator since developments during business cycles (recessions or expansions) give us the most informative data. Since the last recession officially ended – in mid-2009 – inflation-adjusted private sector wages have risen only by 1.74 percent. In other words, that’s the total extent that American workers outside government (where wages are set by politicians’ decisions) have kept ahead of living costs over the last six years.

Interestingly, over the past year or so, the manufacturing real wage path has closely tracked the overall real wage path. As with private sector wages, the inflation-adjusted 0.28 percent monthly gain registered in manufacturing was the best performance since January. And as with private sector wages, manufacturing’s 1.24 percent July year-on-year improvement topped June’s 1.05 percent. As a result, that rise was also a second-worst since December.

Over the longer run, however, there’s been notable divergence between real private sector wages and real manufacturing wages. Whereas the former have risen – slowly – during the current economic recovery, the latter are down by 1.31 percent.

And so it keeps getting ever truer: You can say “wages” and “inflation” in the same affirmative sentence. But you can’t legitimately say that with a straight face.

(What’s Left of) Our Economy: “Manufacturing Day” Coincides with a Lousy Jobs Report

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Employment, Jobs, manufacturing, Manufacturing Day, manufacturing jobs, manufacturing renaissance, manufacturing wages, wages, {What's Left of) Our Economy

It’s like a sick joke. As the National Association of Manufacturers and other industry groups celebrated “Manufacturing Day” today, the new monthly jobs report told us that the sector’s employment creation has sunk into stagnation territory. Indeed, its share of total U.S. jobs has hit a record low, and its wages remain much weaker than those of the private sector overall. Moreover, a jobs recession in the large non-durable goods sector proceeded even deeper into its fourth year.

Here’s my analysis of the September manufacturing figures contained in this morning’s employment report from the Bureau of Labor Statistics:

Manufacturing employment inched up by 4,000 in September, but August’s zero job-creation figure was revised to a 4,000 loss (the first monthly decline since last July), and July’s 28,000 gain was revised down to 24,000.

This stagnation forced manufacturing’s share of total nonfarm employment (the Labor Department’s U.S. employment universe) down to just under 8.72 percent in September – far below even the figure registered by the sector during its February, 2010 absolute employment bottom (10.69 percent).

As a result, manufacturing cemented its status as a major job-creation laggard during the current recovery. Since that 2010 employment bottom, the sector has created only 701,000 of the 9.78 million non-farm jobs created during this period – 7.15 percent. And whereas total non-farm employment now exceeds its pre-recession level by 1.08 million, manufacturing has regained only 30.57 percent of the 2.293 million jobs it lost during the downturn.

Manufacturing wages adjusted for inflation rose by five cents an hour (0.48 percent) in August (the latest available figure) after dropping by a penny (0.10 percent) in July. Real wages in the sector also increased by three cents an hour (0.29 percent) over last August’s level after flat-lining year-on-year in July. But these modest increases still mean that real manufacturing wages are down 2.15 percent since the recovery began in June, 2009 – compared with a 0.29 percent increase in overall private sector wages after inflation.

In addition, the 3,000 September job drop for the nondurable goods sector means that these industries continued to be net employment losers even since manufacturing’s overall payrolls hit their recessionary low in February, 2010.

Net new manufacturing job creation is still up in 2014 on a year-on-year basis – from 79,000 in January to 161,000 in September. But it’s now lower than the 172,000 peak hit in July. At the same time, manufacturing’s average monthly year-on-year jobs increase this year (119,333) is well above the comparable 2013 figure (76,333).

In other words, Manufacturing Day my foot!

(What’s Left of) Our Economy: June Data Show Good Manufacturing Jobs Gains and Ongoing Problems

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(What's Left of) Our Economy; manufacturing, manufacturing jobs, manufacturing renaissance, manufacturing wages

I’ve always considered the U.S. manufacturing output figures to be much more important than the manufacturing jobs figures, since it’s impossible to boost industrial employment without more industrial output. Moreover, productivity gains in manufacturing have been genuine — and robust — for decades. Therefore, payrolls aren’t the best measure of manufacturing’s health, and consequently don’t shed incredibly bright light on the issue of whether the sector is enjoying or verging on a renaissance.

But manufacturing workers, and former manufacturing workers, are human beings, and their story naturally appeals to journalists and many well-intentioned folks generally (at least sometimes). Moreover, these workers and ex-workers vote, so they’re often of great interest to politicians. So there’s no doubt that the manufacturing employment scene is worth following.

This morning, the June manufacturing jobs numbers were released by the Labor Department, along with the rest of the data on the national employment scene. They definitely contained some good news, in the form of solid monthly and year-on-year manufacturing job gains. At the same time, these data also revealed that American industry still badly lags the overall economy in job creation, and that its durable goods sector is mired in a multi-year slump. Further, the latest (May) data show that manufacturing wages keep falling faster than overall wages. Here are the details:

June’s 16,000 manufacturing jobs gain was the best monthly performance since February’s 20,000. In addition, the May employment improvement was revised up from 10,000 to 11,000, and the April rise from 4,000 to 8,000.

Nonetheless, manufacturing’s share of total nonfarm employment actually dipped from an upwardly revised 8.74 percent in May to a new record low of 8.73 percent.

Manufacturing’s job gains since its recessionary employment bottom in February, 2010 have totaled 668,000 – 29.13 percent of the jobs it lost from the recession’s December, 2007 onset through that date.

By contrast, total growth in nonfarm jobs (the Bureau of Labor Statistics’ U.S. employment data universe) during that period has been 9.125 million – nearly 13.70 times greater. And the overall employment in the overall economy is now 0.35 percent higher than when the recession began.

Moreover, the large nondurable goods sector lost 1,000 jobs on net in June. At 4.640 million workers, its employment levels stand below even those to which it fell in the February, 2010 overall manufacturing jobs bottom (4.470 million).

Manufacturing’s year-on-year jobs growth continued accelerating in June – to 130,000 from the 79,000 improvement in January. Yet through June, manufacturing’s average year-on-year monthly job gain has still only been 96,670 – lower than the 109,400 level for 2013 and less than half of 2012’s 215,600 level.

Finally, the rise in manufacturing hiring continues to be clouded by the sector’s poor wage performance. Since the current recovery technically began in June, 2009 through May (the latest available data), total private sector hourly pay has edged down by 0.19 percent when adjusted for inflation. Real manufacturing wages have decreased by 2.71 percent during this period, and fell month-on-month and year-on-year in May.

Manufacturing’s lagging recent hiring progress and ongoing wage decline add yet again to the abundant evidence documenting that industry’s jobs rebound earlier during the economic recovery was purely cyclical, not structural, and that contrary to President Obama and others, it’s anything but a sign that a structural domestic manufacturing renaissance is in sight.

Moreover, if history is a guide, the kinds of new trade agreements President Obama could complete with fast track negotiating authority from Congress will put further downward pressure on manufacturing job creation.

Here’s a link to the new jobs report, so you can examine the raw figures yourself!