Why U.S. Manufacturing Can’t Get Off the Matby
In December, I wrote a piece pointing out that despite all the hype surrounding America’s supposed Manufacturing Renaissance, the data painted a starker picture. Hardly a renaissance, U.S. manufacturing seemed to be closer to a recession back then.
Six months later the story hasn’t changed much, despite the continued sentiment that “Made in the USA” is staging a big comeback. The anecdotes are nice, but the broader data just don’t bear it out. Manufacturing employment over the last 12 months has essentially been flat, stuck at around 11.9 million workers since April 2012. The industry has added around 500,000 jobs since the recession ended, but that’s a drop in the bucket compared with the 1.8 million manufacturing jobs lost from November 2007 through the end of 2010.
It’s not just employment that’s been sagging. Industrial production shrank 0.5 percent in April, according to new data from the Federal Reserve. Overall, the country is using about 77 percent of its total industrial capacity, nearly 3 percentage points below the 40-year average.
The latest bad news comes from the Philadelphia Fed’s report on regional manufacturing activity, which plummeted to a -5.2 reading this month. The average estimate of economists surveyed by Bloomberg called for a gain of 2. Anything below zero indicates contraction. Industrial activity has been essentially flat for the Philadelphia region over the last seven months. It bears noting that the Philly reading is notoriously choppy, with a standard deviation around 11 points since 2010, but a miss that large is still bad news. Things aren’t much better in New York, where the latest Empire State Manufacturing Survey registered a -1.4.
This isn’t just a Northeast trend: Manufacturing activity is stalling in Texas, according to recent data from the Dallas Fed, and in parts of the Midwest, says an April report (PDF) from the Kansas City Fed. The mid-Atlantic notched a big decline in manufacturing activity from March through April. The one bright spot seems to be the Southeast, where industrial production continues to expand, though at a slower pace.
American manufacturers are beset by suddenly cheaper goods from overseas. U.S. import prices fell 0.5 percent in April, according to new data (PDF) from the Bureau of Labor Statistics. High-end products from Japan have gotten particularly cheap, thanks to the country’s aggressive monetary easing. Since January the price of Japanese imports has fallen 1.3 percent. Low-end goods from China are also getting cheaper, despite all the attention paid to higher wages there. Over the last 12 months, the price of Chinese imports has fallen 0.9 percent. Things get worse when you add in Europe’s economic malaise, which is keeping a lid on demand for high-end U.S. manufactured products.
Maybe this is just a soft patch; there are signs that manufacturing activity will pick up through the later half of the year. According to Fed data, commercial and industrial loans are up more than 10 percent compared with 12 months ago, an indication that industrial companies are investing in anticipation for future growth. Although, maybe they’re just buying more machines to replace humans. Still, after helping lead the economy out of recession in 2009 and 2010, manufacturing’s contribution to gross domestic product has all but vanished.
“It’s flattened out completely and is not contributing to GDP growth right now,” says Jacob Oubina, senior economist at RBC Capital Markets. “Any talk of a broad manufacturing renaissance is completely misguided.”