Academic journal article ABA Banking Journal

Manufacturing Leading the Way Back

Academic journal article ABA Banking Journal

Manufacturing Leading the Way Back

Article excerpt

Many wrongly believe that the factory sector is in absolute or relative decline. In fact, real manufacturing output over the medium term continues to grow at about the same pace as the overall economy. In the 20 years from 1987 to 2007, the compound annual rate of growth was 3.0% for both manufacturing and real GDP.

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Despite the impressive upward trend in output, the manufacturing sector has experienced huge declines in the number of people employed. Factory jobs peaked at 19.6 million more than 30 years ago. Since then, employment in the sector has dropped by almost eight million, or by 41%. The share of manufacturing in total employment has trended relentlessly lower, falling from a high of 32% in 1953 to 9% in 2009. That is because huge productivity gains have allowed manufacturers to expand output rapidly while dramatically cutting employment.

Another reason that people believe the manufacturing sector has been in decline is that a smaller share of our spending goes for goods. Current dollar spending on goods has dropped from 49% of GDP in 1950 to 26% in 2009. But that is the natural outcome of the rate of inflation for goods being far lower than for services or structures. Since 1950, the compound annual rate of increase in the GDP index for goods was 2%. For services and structures, the respective compound rates of increase were 4.3% and 4.2%, more than twice as fast as for goods. In other words, people spend a much smaller share of their budget on goods, because the relative price has dropped so sharply. …

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