What About That Giant Sucking Sound?

The decline in US manufacturing is not related to NAFTA which was signed in 1992 but not effective until 1994. 

By then, the US had already started to lose manufacturing jobs. China did not join the WTO until December 2001. 

Undoubtedly, China's entrance into the WTO accelerated the decline in US manufacturing, but even China is losing jobs to improved manufacturing productivity. 

Manufacturing Jobs Stabilized

US manufacturing productivity peaked in October of 2007, right before the Great Recession started. 

Manufacturing employment bottomed at 11.455 million in the first quarter of 2010. That's right about when productivity stalled during the Great Recession Recovery. 

US Manufacturing Productivity Is Falling and It's Cause for Alarm

On July 12, 2021 IndustryWeek reported US Manufacturing Productivity Is Falling and It's Cause for Alarm.

The U.S. economy has been in a productivity depression for more than a decade, suffering from a historically unprecedented slowdown in labor productivity growth. The issue is finally getting attention, at least among some scholars and think tanks.

Some will claim measurement error. This seems dubious given there was very little difference in what was produced in the 2000s and the 2010s, and BLS methodologies did not significantly change. Even if there is some mismeasurement, it cannot account for the fact that overall manufacturing productivity growth fell from 41% growth in the 2000s to a 4% decline in the 2010s.

What about new technologies we keep hearing about, framed in terms as “Industry 4.0” and the “Second Machine Age”? Leaving aside that the best way to sell books and give Ted Talks is to exaggerate the pace of technological change, the reality is that these technologies are still in the early part of the “S” curve. They are often costly, with limited performance. This is one reason why few companies are adopting them. As ITIF found in a 2019 survey of over 100 mid-sized U.S. manufacturing companies, just 5% of the companies have mapped where AI opportunities exist and developed a clear strategy for sourcing the data that AI requires. And 56% of companies had no plans to do so.

Another reason, perhaps the main one, is likely that much of the “low-hanging” fruit in manufacturing was already “picked” in prior decades. It is now a lot harder to seek out efficiency gains, given how efficient many factories already are.

Year-Over-Year Manufacturing Productivity 

Low Hanging Fruit

The above chart is from the Fred Data Series Manufacturing Sector Labor Productivity.

The chart was updated on March 23, 2021 but the year-over-year data ends at 2019.

For 5 of the last 6 years and 6 of the last 8 years (ending in 2019) manufacturing productivity has been negative. 

That more than anything else explains why the number of manufacturing employees stabilized then increased slightly.

Long-term, it's probably not wise to bet against a future upward increase in productivity. 

Don't Count on Biden

The charts suggest that when productivity improves, manufacturing employment will at best stay relatively flat. 

So don't expect Biden to be any more successful than Trump was in bringing manufacturing jobs back to the US.

And if Biden actually gets his wish of 80% clean energy by 2030, expect a stagflationary global trade war, not the revival miracle he promises.

How to Avoid a Carbon-Based Global Trade War

Avoiding a trade war is easy. I outline the process here: How to Avoid a Carbon-Based Global Trade War in Simple Steps

Hope For Nothing But Expect a Mess

If anything happens in Congress that gets Biden's $3.5 trillion bill off the ground it will be a guaranteed mess.

There is no way the WTO or anyone else will resolve it, and the bill itself is stagflationary.

The best thing that can possibly happen is nothing. Anything else is a mess.

Mecall my July 15 article The Greens Hijack Biden's $3.5 Trillion Budget Proposal (That Could be a Blessing)

Blessing?

My idea was the bill was so loaded with garbage that it might sink everything.

Odds of Nothing Improve

Fortunately, the odds of nothing have greatly improved.

For details, please see Senator Manchin Seeks "Strategic Pause on Reconciliation" Did Biden's Budget Just Die?