Manufacturing Trends: Long-Term Context for Today's Policy Issues

Publication Date: September 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Labor

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Abstract:

Although the U.S. economy has emerged from a relatively shallow recession in 2001, by mid-2005 there was still no recovery in the number of manufacturing jobs. Nevertheless, real output in U.S. manufacturing in early 2005 stood more than 30% higher than at a similar point after the recession of 1991, even with 2.5 million fewer manufacturing employees. Members of Congress are increasingly concerned as to how these developments affect manufacturing employment in their states and districts. This report revises a CRS report released in early 2004 to provide a baseline study for Members of Congress on long-term trends in manufacturing output, productivity and employment, including some extensions of time-series data.

Employment in manufacturing has declined as a share of overall employment since 1960 at about the same rate of decline as the current-dollar share of GDP accounted for by manufacturing output. Both measures have fallen from 30% to less than 15%. Only about 14 million people were employed in manufacturing by mid2005. The all-time peak was more than 19 million in 1979, and each successive cyclical economic peak since then has seen fewer persons so employed. But measured on a real basis, manufacturing output kept pace with total output in other sectors, despite its shrinking share of employment. The explanation seems to lie in rising labor productivity, which grew 50% more quickly for manufacturing than for the total economy between 1960 and 2000.

These overall trends in manufacturing mask highly divergent performances among individual industries. Output and productivity among individual sectors do not tend to cluster around overall average levels of performance. This report examines in more detail three specific manufacturing sectors: information technology industries, which have been high-growth areas of the economy and internationally competitive; the automotive sector, which has been affected by high levels of import penetration and is divided between the "Big Three" U.S.-based manufacturers and the U.S. facilities of internationally based firms; and, textiles and apparel, which are facing a high level of import competition and have experienced large numbers of job losses.

Globalization, meaning the increased internationalization of markets, inputs and investment, has had a major impact on U.S. manufacturing. Since 1980, the U.S. trade balance in manufactured goods has gone from a surplus to a deficit of nearly $500 billion. The deficit is concentrated in consumer and automotive products, but even capital goods moved into deficit in 2003. While foreign outsourcing (also known as offshore outsourcing or offshoring) has become a major issue, the report notes evidence that nearly all major industrial countries, including China, have lost manufacturing jobs since 1995. Changes in the dollar exchange rate and U.S. international trade agreements may also have affected domestic manufacturing.

The report concludes by examining various approaches to industrial and industrial competitiveness policies. This CRS report will not be updated.