man standing beside heavy equipment

Is U.S. Manufacturing Showing Signs of Growth?

At the dawn of the 1950s, the U.S. had 43.5 million workers. Of those, 13.2 million, or 31 percent, worked in manufacturing. At the end of 2016, the U.S. economy had grown to include 145 million workers. This increase represented a more than tripling of the U.S. workforce since the 1950s. But, just 12.4 million of those workers — less than 10 percent — worked in manufacturing, a decline that started in the 1980s. This decline by itself would not be a problem if those jobs were replaced with other high-quality employment. But, those jobs were not. So, it shouldn’t be surprising that Donald Trump and then Joe Biden made bringing back manufacturing jobs a priority.

The question is: did either president see actual growth in manufacturing jobs? And, if so, does any evidence exist that the trend will continue into the future? Let’s check it out.

A Long-term Decline in U.S. Manufacturing

The figure below shows the number and share of U.S. workers employed in manufacturing from 1939 through the end of the Obama Administration. Throughout the entire time period, the share of workers employed in manufacturing was dropping (with the exception of WWII). And, starting in the 1980s, the actual number of workers employed in manufacturing also started to drop as well.

Figure 1. Number and Share of Non-Farm Employees Working in U.S. Manufacturing

Source: Adopted from Federal Reserve Economic Data (FRED).

In the graph, one can see that the “peak” of U.S. manufacturing in terms of individuals employed was June 1979. Since then, several steep declines have occurred, especially during the 2000 and 2008 recessions (as shown by the dotted lines). The end result was that manufacturing jobs represented just 8.5 percent of all employment by the end of 2016. Why did this decline happen?

More Productivity + More Trade = Less Manufacturing Jobs

The most obvious question in thinking about the decline of U.S. manufacturing employment is: are we just making less stuff? But, the answer is no. Real manufacturing output has increased by about 60 percent since the late-1980s. Over that same time period, manufacturing employment dropped 30 percent.

How is this inversion possible? Basically, U.S. manufacturers are making more output with fewer workers. According to a paper by Martin Bailey and Barry Bosworth, since the 1980s, labor productivity in manufacturing — a measure of output per hour worked — grew 50 percent faster than labor productivity in other sectors. Overall, manufacturing productivity has more than doubled since the late-1980s, but output only grew by the aforementioned 60 percent. With productivity outpacing output, fewer workers were needed.

On top of this extra productivity, the U.S. has maintained an increasingly negative trade imbalance with respect to manufactured goods. According to that same Bailey and Bosworth paper, in 2000, the U.S. imported $316 Billion more manufactured goods than it exported. That amount had grown to $460 Billion by 2012. A more productive labor force combined with increasing trade imbalances means fewer workers were needed to produce goods here.

Given this decline, and the status of manufacturing jobs as relatively high-paying, it shouldn’t be surprising that the issue became a political cause by the late 2010s.

Recent Manufacturing Employment

If we look at the last 7 years or so, a slightly different picture begins to emerge. The figure below shows the last seven years of manufacturing employment. It also labels the level of employment at the beginning of the Trump and Biden Administrations, the beginning of the COVID pandemic, as well as the most recent level (as of this writing). The figure additionally highlights the introduction of the Trump Administration Tariffs against China and the passage of the IRA and CHIPS act seeking to encourage green manufacturing and U.S. manufacturing of computer chips respectively.

Figure 2. Manufacturing Employment from 2017 through July 2023

Source: Adopted from Federal Reserve Economic Data (FRED).

The figure illustrates a few points. First, the number of employees engaged in manufacturing grew over 600,000 over this time period despite a considerable drop due to COVID. The last time that such a large increase took place over a similar time period Friends was still on TV. So, that’s some recent good news.

The figure also illustrates the difficulty attributing this success to either the Trump or the Biden Administration. Through the start of COVID-19, 360,000 manufacturing jobs were added under the Trump Administration. While many more manufacturing jobs — nearly 800,000 — have been added under Biden, some of that increase is because the Biden Administration started from a lower point due to COVID. Plus, both of the Administrations’ big manufacturing policies occurred at the end of job expansions not the beginning. So, it’s hard to attribute these increases to those policies, at least so far.

In particular, The Trump Administration’s Tariffs on imports like steel and aluminum from China likely did no good for U.S. Manufacturing. After all, imposing tariffs on metals that are themselves inputs to domestic manufacturing simply makes the things that we do manufacturer more expensive. Indeed, The Tax Foundation estimates that, if anything, these tariffs would reduce long-run full-time employment by about 160,000 workers. But, what about the future under the new Biden Administration policies?

What Does the Future Hold for U.S. Manufacturing?

On the future front, I have some optimism and also some caution. The reason for optimism comes from the figure below. It shows total construction spending in manufacturing, and again highlights the Trump Administration’s Tariffs and the Biden Administration’s efforts to encourage green and microchip investment.

Figure 3. Total Construction Spending in Manufacturing, Millions of Dollars

Source: Adopted from Federal Reserve Economic Data (FRED).

The figure shows that following the passage of the CHIPS and Inflation Reduction Acts, construction investment in manufacturing has spiked sharply, even above an already upward trajectory (which itself was likely due to the knowledge that passage of those acts was likely). It’s also worth noting how little the needle moved from the more “stick”-based approach of tariffs. Again, not surprising.

The reason that I am cautious about future gains comes from the possibility of recession. The 2000 and 2008 recessions show the danger of recession to manufacturing employment. And, those recessions’ recoveries show how hard it is to regenerate those jobs. Current data on job openings and unemployment are beginning to show some softness. If the Federal Reserve’s inflation-fighting policy triggers recession, any manufacturing gains could be lost. So, like a good economist, what does the future hold for U.S. Manufacturing? It depends.

Leave a Reply