In World Economy News 12/12/2016
Pulling off a renaissance in U.S. manufacturing employment will be extraordinarily tough.
After hitting a record of nearly 20 million in 1979, the number of American factory workers has plunged during each of the last five recessions and each time has never recovered. Today, 12.3 million people are employed in U.S. factories, a loss of nearly eight million jobs.
Forecasters in The Wall Street Journal’s monthly survey of economists doubt the numbers of bygone years can be restored. They estimate the U.S. will add about 7,000 manufacturing jobs by the end of 2017, about 40,000 by the end of 2018 and about 50,000 by the end of 2019, according to the average forecast—moving upward in coming years, but at a pace far too slow to replace what has been lost.
“Manufacturing employment is now back to 1941 levels and falling,” said James Smith, chief economist of Parsec Financial. “This is a global trend and not at all specific to the U.S. It is caused by labor productivity growth.”
Mr. Smith’s figure about 1941 is correct. In December of that year, the month the U.S. entered World War II, the nation had about 600,000 more manufacturing workers than today, even though today’s overall U.S. labor force is nearly triple the size.
The decline in manufacturing employment became a flashpoint during the presidential election. President-elect Donald J. Trump has vowed to renegotiate U.S. trade deals so American workers are better protected from foreign competition. Last week, he traveled to Indianapolis to announce that Carrier Corp. would retain about one-third of the jobs at an Indiana factory that previously were going to be entirely shipped to Mexico.
Yet many of the economists in the survey agree with Mr. Smith that the biggest reason so many fewer people work in today’s factories are advances in automation. Improvements in assembly-line technologies and the deployment of industrial robots allow U.S. manufacturers to produce more goods than ever before, but with much smaller workforces. Even if all outsourcing were ended immediately, the march of technology would put steady downward pressure on manufacturing employment.
Asked about the primary cause of the decline of manufacturing jobs, 47% of respondents pointed to automation while 18% said automation and offshoring had played roughly equal roles. About 28% said offshoring had been the primary culprit.
The survey of 62 economists was conducted from Dec. 2 to Dec. 6. The respondents were a mix of academic, financial and business economists.
Despite having doubts about the prospects for manufacturing, they were generally optimistic about the economic outlook in coming years. The economists expect 2.4% economic growth over the next two years, up from pre-election estimates of 2.1%.
They expect the unemployment rate to be somewhat lower, and interest rates and inflation to be somewhat higher, with many crediting Mr. Trump’s priorities of infrastructure spending and tax cuts for the boost. The odds of a recession in the next 12 months declined slightly in this month’s survey to 17%, down from 20% in the survey before the election.
Not everyone is pessimistic about manufacturing. Among the optimists is Deloitte senior U.S. economist Daniel Bachman.
“Deloitte believes that automation will push the U.S. to become the most competitive manufacturing nation by 2020,” said Mr. Bachmann.
Every three years, Deloitte compiles a Global Manufacturing Competitiveness Index, which concludes that U.S. manufacturing is getting increasingly competitive. As manufacturing becomes more high-tech and specialized, the U.S. stands to benefit. Although U.S. workers have higher wages, they are more skilled and productive than international counterparts, Deloitte’s report argues.
But even the optimists concede that significant missteps remain a possibility. In an open-ended question about the biggest risk to the economy, the most common response (from 46% of respondents) was the potential for trade to deteriorate.
“Even if we manage to avoid a full-out trade war, our companies are now going to face more hurdles selling abroad,” said Diane Swonk, founder of consultancy DS Economics in Chicago.
After all, the U.S. has an $18 trillion economy, but the world’s is more than $73 trillion. A deterioration or collapse of international trade relationships could see U.S. factories facing less competition over the domestic economy while increasingly being locked out of the much larger global economy.
Source: Wall Street Journal
