13 March 2012

Is Manufacturing Special?

ManpowerGroup has just released their latest employment outlook survey looking to the next quarter (April-May-June). In the graph above I show the report's numbers for companies in the US expecting to hire more employees over the next three months (calculated as the percent expecting to add minus the percent expecting to cut, US data here in PDF).

I have highlighted the manufacturing sectors in red (durable and nondurable goods). They show significant expectations for hiring, but less than leisure & hospitality, mining and professional & business services. With professional & business services currently employing about 18 million people, as compared to about 12 million in manufacturing, someone will have to remind me why manufacturing is supposed to be a special sector and not not professional and business services.

24 comments:

Sean said...

Why is manufacturing special? Because someone with a high school diploma can make a better living there than they can in most other sectors of the economy that they are qualified to work for.

Roddy said...

Every case is different, and there are many other reasons (tfp etc v wages, household and corporate debt, wha'ever) but every country in Europe gazes at Germany and their manufacturing in awed amazement and jealousy. But of course you're right.

Jesse Jenkins said...

Hi Roger: once again, here's your reminder. (hint: it's not about direct employment)

Roger Pielke, Jr. said...

-3-Jesse Jenkins

Thanks, yes I did read the report and found it entirely unconvincing ;-) If it is not about direct employment, fair enough, what then is it about? Just a short list would be fine, Thanks!

Roger Pielke, Jr. said...

-3-Jesse

Got your Tweet, so manufacturing is special because (from your exec sum):

a) you think it is correlated with industrial R&D
b) it has a lot of jobs
c) a few other countries have manu as larger shares of GDP
d) Germany has a strong manu sector
e) manu has large I/O table multipliers
f) You think manu can help close the trade deficit

That about it?

Jesse Jenkins said...

I have to retype the executive summary of our report here?! Ok... ;)

1) Manufacturing has the largest economic and employment multipliers of any sector of the US economy. So those direct jobs are only half the story.

2) Manufacturing, advanced manufacturing in particular, is an integral part of the innovation system, contributing about 2/3rds of all private sector R&D spending and employment of an equal share of all US engineers and scientists, despite its much smaller share of overall GDP.

3) On a related note, losing out on advanced manufacturing sectors now often means losing out on derivative industries later that spin out of innovations and research in current manufacturing industries. Losing consumer electronics batteries in the 90s meant we lost out on the much larger market for laptop batteries and cell phone batteries, and now are at a major disadvantage in the even larger market for large-format advanced automotive batteries. Similar story for flat panel displays, which lost us the now much larger markets for iPad and iPod and other touch screens, e-reader displays and laptop screens etc. Big implications for continued economic growth

4) Services are often derivative of manufacturing sectors too. Lose the manufacturing and the close relationship between services and manufacturers and you can lose competitiveness in the services too.

5) You can't close the trade deficit with service exports alone. Math on that in the report.

That's all I can write now, as I have to run. Much more here.

Harrywr2 said...

As Sean said at #1

Manufacturing is special because it tends to pay generally good wages to people whose skills and education are limited.

Professional and Business services are generally performed by people educated well enough that they can shift whatever way market forces blow.

The current unemployment rate for people with at least a bachelors degree is currently 4.2% with a participation rate of 76%.
http://www.bls.gov/news.release/empsit.t04.htm

The current unemployment rate for people with a high school degree and no college is 8.2% with a participation rate of 59%.

The unemployment rate for people with less then a high school degree is 12.9% with a participation rate of 46%.

We aren't going to let under-educated, under-employed people starve to death. So we can either find them 'good work' or pay 'social benefits'.

Roger Pielke, Jr. said...

-6-Jesse Jenkins

Thanks, I'll have a more complete analysis on this before long (has been in the works for a while), but for now:

1) So what? Services has a slightly smaller multiplier, but it multiplies a much larger base as is a growing sector. Services win.

2) The relative decline of manufacturing is not associated with a decline in industrial R&D: http://rogerpielkejr.blogspot.com/2012/02/manufacturing-vs-industrial-r.html

3) Economic growth in manufacturing has continued strongly despite these various factors you list - http://rogerpielkejr.blogspot.com/2012/01/manufacturing-services-resources-one-is.html

4) Manufacturing has been declining for decades around the world and services have more than taken up the slack

5) Dubious, but beyond the scope here.

As I said, I am underwhelmed by the arguments for special treatment of the manufacturing sector versus any other sector of the economy.

Thanks!

pedex said...

economic leverage, that's why

Services may for the medium term gotten larger and "taken up the slack" but then again many economic indicators are screaming about the major imbalances, instability, and more crashes coming. So is it possible for the service sector to really replace the manufacturing sector? How bout finance, real estate, and insurance? Those areas have climbed into the stratosphere as well, can they stay there? Seeing how they too as well as the service sector has largely been based on fraud and artificial govt stimuli I'd say no.

Our pyramid scheme of economics like anything else needs to have some balance. Sure you can for a time push things around and skew one sector over another but for how long? What happened on late 2007 into 2008 is a good illustration as well as the ongoing fall out from it.

Other unmentioned factors also come into play which have distorted the picture: energy, geo-politics, reserve currency status etc etc Not all nations are playing with the same tools available or by the same rules, they just all share the same playing field. How well does a nation like Germany do if it can't game its position using the euro? What happens to the US if it has to actually pay for its way of life and expenses for a change rather than using its currency as a weapon and tool? What's that do top the economic make up of a nation? These factors must be considered.

Roger Pielke, Jr. said...

-9-pedex

Thanks, you ask: "So is it possible for the service sector to really replace the manufacturing sector?"

Look at this data, it already has in a big way:

http://rogerpielkejr.blogspot.com/2012/01/celebrating-decline-of-manufacturing.html

pedex said...

only on a short time frame though

depends on your perspective which is I why I brought up the financialization of the economy over the last 3 decades which has clearly shown itself to be unsustainable

IMO 30-40 years does not a trend or general rule make in the area of economics

Look at all the massive distortions and dislocations our govt and banking sector has resorted to in order to help or allow the service sector to do what it has done and it is crashing around us as we post this isn't it?

In other words and to get right to the point, your conclusion is based on unstable and unnatural economic conditions which are unwinding with a vengeance and unlikely to be repeated anytime soon and only involves a few nations.

pedex said...

overlay debt vs GDP and overlay debt leverage on GDP for the last 30-40 years.........that should illustrate the point quite clearly

jae said...

I just cannot see how "expectations for hiring" has anything to do with whether manufacturing is "special." But I'm getting old, so I just may need some special services.

D. Robinson said...

Roger - the amount of manufactured goods we export is staggering. What would happen to the USA's trade imbalance without manufacturing?

Without Exxon shipping refined fuel, Deere, Caterpillar, GM, Ford and Cisco etc. shipping out $1.3 trillion worth of goods, how would we pay for the $2.1 trillion worth of stuff we buy?

And the $1.3 trillion doesn't (I think) include the USA's entertainment industry, which 10 years ago was already up to $60 billion in exports. Or software exports.

It seems to me that, at some point, we need to bring some money into the USA to make up for all, or at least some, of the money we send out. Would you not agree?

Soybeans, gas refining, tractors or Hollywood hits all come from 'manufacturers'. Add in the companies like Apple who manufacture elsewhere but bring the money home. Can the service industry fill the hole that would be created without all these exported goods?

So is manufacturing special? I don't know, but I wouldn't want to see the effects of a $2 - $3 trillion dollar trade imbalance, and I don't think Disney World can bring in enough tourists to make up for it.

http://www.worldsrichestcountries.com/top_us_exports.html

Or do I miss your point?

Roger Pielke, Jr. said...

-14-D. Robinson

Thanks .. quick reply for now, there is a big difference between manufacturing as (a) an important and growing (in absolute terms) economic sector and (b) manufacturing as a source of jobs and importance of its relative share of the economy.

Many analyses that I've seen, including the once referenced by Jenkins at the BTI, conflate those two perspectives.

Mark B. said...

I worked at L.E. Mason Company in Boston, MA. The company closed around the year 2000, but you will find the brand name "Red Dot" on products at Lowes. If you read the fine print, you'll find "Made in Mexico" on the box.

The company was an aluminum and zinc foundry, and made electrical boxes for home and business construction - like the boxes in the wall that house your electrical sockets in your house.

The foundry rooms were mostly black and hispanic workers, as was the assembly and finishing room. The paint line was mostly 'manned' by Cambodian women for some reason.

When the company closed, all those workers lost their seniority, and the benefits that had accrued. The skills they had learned were applicable only to the specific jobs they did. Most of these people would have been sent back on the job market with a 'resume' that would say 'entry level, plus shows up every day on time,' and nothing else.

I think we can assume that these people are not now writing apps for iPhones. They got knocked to the bottom of the ladder - again. Now, there is another generation of people just like them, coming out of high school, or immigrating to this country with limited skills. Where do they go? The knowledge economy has a limited ability to absorb them. Of course, if you've never worked with them, and never meet them during your day, it won't occur to you that there's a problem.

Roger Pielke, Jr. said...

-16-Mark B.

Thanks ... manufacturing as a way to maintain low wage, low skill jobs, just when I thought I'd heard it all ;-)

Harrywr2 said...

17- Roger

manufacturing as a way to maintain low wage, low skill jobs

My father has a 10th grade education.
He never managed to get his head around 'fractions'. I tried to teach him when I was about 12 because he was up for a promotion at his factory job and it required the ability to add fractions.

He ended up getting the promotion and I ended up doing the 'fraction adding' for him in the evenings until I moved away. At which point he took a voluntary demotion.

Before his factory job he had a job cutting brush on the side of the road with a sickle...but machines do most of that now.

Road construction and maintenance used to employ a significant number of people like my father. That's mostly mechanized now. The same goes for agriculture.

How does 'society' ensure people like my father have opportunities to be 'productive members of society'?

It appears we either mechanize the things that they can do or we offshore the the things that they can do or we make it 'self service' like the gas station.

MattL said...

-18- Harrywr2,

Isn't the answer obvious? We need to send people like your father to college!

Jonathan Gilligan said...

Roger,

One argument I've seen for saying manufacturing is special is the potential for technological improvements to worker productivity that are not possible in many service-sector jobs, such as leisure and hospitality, or teaching.

If the economy is going to grow faster than the population then a large fraction of economic activity should be in sectors where technology allows exponential growth of worker productivity over time.

Of course there are other sectors than manufacturing that have this property, so I don't see anything magical about manufacturing per se, but let's do focus on potential for productivity growth.

Roger Pielke, Jr. said...

-20-Jonathan Gilligan

Thanks, I agree ... however, potential for productivity growth doesn't really distinguish manufacturing from, say, agriculture.

As well, improvements in worker productivity mean fewer jobs in a sector that is decreasing as a proportion of GDP:
http://rogerpielkejr.blogspot.com/2012/02/does-increased-productivity-decrease.html

So arguments, such as those presented by Jenkins above at BTI, that manufacturing is special because of jobs just don't make mathematical sense.

Thanks!

Jonathan Gilligan said...

Roger,

Your point about agriculture is well-taken.

I've been looking at the shift from rice farming to shrimp farming in Southwestern Bangladesh.

Worker productivity is about 10 times as high in shrimp farming as in rice farming, and similarly to what you say about manufacturing, growth of shrimp farming was seen positively by one group of people who liked the fact they didn't have to hire as many workers after they converted their rice paddies to shrimp ponds, while another group of people who depended on seasonal work in agriculture were less pleased with losing those jobs. Rural slums are starting to spring up even as the regional economy grows. There's a whole lot more to the picture and I don't think I have anything like a good understanding of it---right now, the more I learn, the more ignorant I become because every answer stimulates half a dozen new questions---but this piece fits with what you wrote about industrial productivity gains at #21.

D. Robinson said...

Roger,

In response to your post I was looking up data for the USA's 'services' exports compared to 'goods'. It's interesting, in January we exported $128 billion in goods and imported $196 billion hence our well known trade deficit.

But services wise we exported $52 billion and only imported $37 billion so there's a surplus.

Thinking a service company wouldn't have the same number of employees as a mfr I decided to compare a US services company to a US manufacturer.

Deloitte has revenues of $28.8 billion worldwide and 45,000 employees in the USA. Caterpillar has revenues of $26.8 billion worldwide with 47,000 US employees. So far I'm supporting your point by accident!

I wonder though, if our manufacturers weren't world leaders in productivity, who would hire us as consultants? You certainly have me thinking.

Roger Pielke, Jr. said...

-23-D. Robinson

Thanks ... very interesting data indeed!

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