Many bemoan the decline of U.S. manufacturing employment. But one economist points out that data on new plant construction is even more telling:
In his most recent column in IndustryWeek, Michael K. Evans, chief economist for American Economics Group and president of consultancy Evans Group, considers the statistic that provides the most revealing look into the future of U.S. manufacturing.
Is it U.S. manufacturing employment, which has dropped 10 percentage points in the past 25 years, from 21% of total U.S. employment to 11%? Perhaps. But Evans points out that some think this is misleading since U.S. manufacturing production as a proportion of total inflation-adjusted GDP has remained virtually unchanged from its 1980 level.
Evans believes that “at least some of the answer lies elsewhere — in the data relating to manufacturing construction.” This is where things begin to look dismal. He writes, “since 1980, manufacturing construction — that is the building of new plants and the expansion of existing plants — has fallen from 10% of total nonresidential construction to 2%. Relative to the index of manufacturing production, it has plunged from 0.8 to less than 0.1.”
And you can’t liken the current construction downturn that started in 1998 to a previous period of significant decline–from 1982 through 1985–which was due to exceedingly high real interest rates and an overvalued U.S. dollar. Since interest rates have been low and the U.S. dollar has hovered near or below its equilibrium value in the past seven years, Evans concludes that “there is no likelihood of a reversal of this declining trend such as the reversal that occurred in the late 1980s and early 1990s once interest rates and the dollar’s value returned to normal levels.”
What’s happening? It’s plain as day, says Evans, manufacturing construction is going overseas.
And this sets forth a nasty cycle. Evans observes that the “most modern plants, incorporating the most modern technology, are being built in low-wage countries. The plants left in the United States are, for the most part, obsolete. They also employ the most expensive wage earners, in terms of seniority, fringe benefits and forthcoming pension payments.”
But how about the figures that indicate that purchases of capital equipment by the manufacturing sector has stayed relatively strong and mostly on pace with other industries’ purchases? Evans says that “in some cases, new machines are simply being placed in old buildings.” Additionally, he writes that the expansion is happening mostly in high-tech industries. Because the value-added per worker is very high in these industries, only a limited number of production workers are needed.
To this day, Evans points out, some (“including but not limited to union leaders and liberal politicians”) are not acknowledging the real problem that is manifesting itself in the disturbing downturn in U.S. manufacturing construction. He writes that “in their view, if we could only get other countries to grow faster, or institute ‘fair’ trade measures, or make Asian and Latin American nations stop underpaying their workers, the U.S. trade deficit and the decline in the U.S. manufacturing sector would be reversed.” Not so. While he stops short of outlining solutions, he suggests that we can start to find answers in these figures.
Source:
Evans On The Economy — Building Manufacturing’s Future
Michael K. Evans
IndustryWeek, July 1, 2005
www.industryweek.com/ReadArticle.aspx?ArticleID=10446
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A drop in percentage points from 21% to 11% is only a 10% drop is as misleading as the fat content labeling on packaged foods. There’s a theological term I like to use for that sort of thinking…stooopid.
We have experienced almost a 50% drop, and much of that over the last 5 years.
The manufacturing wagon trains have loaded up and headed east. Far East. And they won’t come back until the consumer demands domestic manufactured goods again.
Political Pontifs will tell you that American consumers are demanding less expensive goods. I haven’t seen anything get less expensive because of the move to China for manufacturing. The corporations bottom lines are healthier, as are the benefits packages of the CEOs and others at the top.
We have been sold out, again.
It’s called survival. Chinese competition is so strong that domestic manufacturers can only afford a machine now and then to survive. Why would you build new plants when the U.S. is full of wonderful properties that have been abandoned.