The Future of American Manufacturing

A January article in the Financial Times examined the prospects for a revitalized American manufacturing sector in the near- future.  The United States, like most other developed countries, has seen its share of gross domestic product (GDP) attributable to manufacturing decline over the last few decades.  Manufacturing currently accounts for about 12 percent of U.S. GDP.  Similarly, the number of Americans employed in manufacturing has significantly declined over the years, as technological advancements enable greater efficiency.

However, manufacturing is worth focusing on because it is an area that often sees greater productivity increases than service industries.  For example, the Financial Times article states that between 1995 and 2005, manufacturing’s share of U.S. GDP was 17 percent, but it accounted for 37 percent of productivity gains over that period.  Perhaps as a corollary of that greater potential for productivity gains, manufacturing jobs on average offer better pay than service jobs.

The article notes that several factors are in favor of the American manufacturing sector.  The dollar is down approximately 20 percent from its 2002 peak, which lessens the cost of American workers relative to foreign workers.  The growing “cheapness” of American labor is particularly true given rising wages in foreign competitors like China; in 2000, U.S. wages were 22 times greater than Chinese wages, but that multiple is expected to decline to 4 by 2015.

Second, some manufacturing companies engaged in energy-intensive production will benefit greatly from the cheaper natural gas (and possibly oil) made possible by recent technological advancements in drilling.

Third, and perhaps most importantly, U.S. manufacturers compared to their foreign competitors excel when it comes to analyzing data to improve efficiency.  But a recent survey found that a many U.S. manufacturers are lacking when it comes to using “Big Data,” suggesting that manufacturing has the potential to increase its productivity even more.

Facebook Comments