U.S. industrial output is at an all-time high, MFG GDP an all-time low. Decline or revival?

By Bart Taylor | Jan 06, 2015

Writers and analysts like Forbes' Tim Worstall view manufacturing as a sector neither in decline nor resurgent, but one simply changing with the times. For Worstall and others, manufacturing's time has has come -- and gone -- and speculation about the health of the sector misses the broader point that U.S. manufacturing is alive and well but resigned to second-tier status in today's technology-and-healthcare-centric service economy.

His argument is not without merit: as manufacturing GDP and employment have declined to historic lows, U.S. productivity has continued to rise, driven by technology and the evolution to machine-made goods.

Worstall cites the Federal Reserve's Index of Industrial Productivity as proof that the decline of American manufacturing is a misnomer. Indeed, as manufacturing GDP has fallen to around 13 percent of the economy, U.S. industrial output is today at an alltime high, recently surpassing the 2007 peak that preceded the Great Recession:

It’s a popular view, that structural changes will permanently diminish manufacturing’s importance even as the nation continues to produce more.

There are signs that it may not play out that way. For one, that implications of offshoring a manufacturing generation is even today slowing industry’s ability to keep up with demand, to find talent.

But whatever the jobs and economic equilibrium, it’s easy to take a more bullish view. Manufacturing’s has long been the engine of American R&D, and given improving economics of 'Made in the USA', the prospects for sustained national investment in research - in manufacturing - are good.

Moreover, many high-flying U.S. multinationals are manufacturers - they just don’t make a lot of stuff here. For now. Apple’s a tech company, Nike a giant in consumer goods. We celebrate design and engineering, management and retail innovation. At the end of day, they’re manufacturers. If making here is more economical, and increasingly it is, more will do so. That’s not a decline.

Manufacturing’s halcyon days, of 24% GDP, may be gone. But the U.S. economy will continue to be shaped by makers, maybe even more so in the future. Trends point in that direction.

Employment and GDP growth may folliow. Call it what you will.