American Factories Have One Very Big Problem

The U.S. has added 1.2 million jobs in manufacturing over the past eight years. Before you cheer for the revival of American manufacturing, consider the reason for all that job growth: abysmal productivity performance. Factories have had to put on additional workers to fill orders because their output per hour of work is scarcely improving.

The good reason to have a job is that your employer is expanding so rapidly that it needs to hire more people, even though it’s getting more production from each person. That’s not what has been happening in the U.S. Instead, manufacturing output growth has been sluggish, but productivity growth has been even more sluggish. Since 2011, manufacturing productivity—that’s the value of output per hour of work—has risen just 0.7 percent. That’s not per year. That’s the total growth over the entire period. In contrast, productivity grew at 1 percent on average during every quarter in the 1990s.

Michael Feroli, the chief U.S. economist at JPMorgan Chase, focuses on the problem in a startling research note on the topic on May 8 titled “Stick a fork in manufacturing productivity growth.” He raises and then dismantles several comforting explanations for the poor performance.