The Bankwatch

Tracking the consumer evolution of financial services

The economic role of manufacturing in the West (and Japan) was lost long ago

There is a lot of nonsense spoken during political seasons and the US is seeing that in spades at the moment.  One of the nonsenses is that a structural shift has occurred in the economic world of manufacturing and that is what in part caused the the global financial crisis, or at least the crisis was a symptom.

This from FRED (Federal Reserve of St Louis) tells a very clear story about the fate of manufacturing in the US since 1970.  The percentage of US employment associated with manufacturing has been on a consistent trend dropping from 28% to 10% over that41 year period.  While there were blips during recessions (grey bars) the trend is not associated with any Republican or Democratic government, or the more recent introduction of Apple iPhone, nor the 2008 crisis.

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Unfortunately the FRED database does not contain data on China but this from the BLS database shows the US and China to be similar in terms of % of employment associated with manufacturing.  “This article has demonstrated that manufacturing employment in China increased during the 1980s and early 1990s, peaked in about 1995–96, declined during the late 1990s until 2000–01, and increased again in 2002.”

The other difference lies in the rest of the economy.  The Chinese alternative is to remain in agriculture which pays less.  The US alternative is to join services. 

When it comes to solving unemployment in the US this suggests they need to concentrate on the 88% that is not manufacturing, rather than blame China.

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Here from FRED is the trend lines for the other Western and Japan economies.  Virtually identical to US.  The role of manufacturing in the West was lost long ago.

Japan

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Canada

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UK

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Germany

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Written by Colin Henderson

September 3, 2012 at 20:28

Posted in Uncategorized

One Response

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  1. I don’t find the title of this post accurate. The manufacturing output of the west has actually gone up, even through the recession–its just done so while shedding jobs. The US is the still world’s largest manufacturing economy, producing 21% of global manufactured products. (China is 2nd at 15%, Japan 3rd at 12%.)

    On the topic of manufacturing jobs, there are some bright spots on the horizon in the US. As labour costs in China and automation technology both continue to increase, there will be less incentive to manufacture abroad if energy and raw material costs are the same. In that regard, the US’s investment in natural gas (fracking) could actually make it cheaper to manufacture there than anywhere else.


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