Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).

The official U.S. government verdict is finally in on manufacturing’s performance in 2008 – the first full year of the current economic crisis. The picture that results is not only ugly, but it’s also  downright scary for anyone realizing that the nation’s only hope of genuine economic recovery is producing its way out of today’s mess by strengthening America’s productive sector – which is dominated by manufacturing.  For the manufacturing figures, contained in the Federal Reserve’s Index of Industrial Production, show that the United States  remains altogether too far from achieving that goal

Although the final 2008 performance figures for the whole economy won’t start coming out until January 30, all indications are that manufacturing led the nation into recession – by leaps and bounds.  In real (inflation-adjusted terms), the economy grew a bare 0.57 percent from the first through the third quarters of 2008.  (The fourth quarter is likely to see a five-plus percent contraction.)  But from March, 2008 (the end of the first quarter) to September, 2008 (the end of the third), real manufacturing output fell by just over six percent.  For the whole year, inflation-adjusted manufacturing output fell a whopping 10.04 percent.

That drop-off  was far from manufacturing’s worst of all time.  During the Great Depression, real annual industrial output sank by 16.95 percent or more three times, and once by 10.83 percent.  But how comforting could that comparison possibly be – especially since the current economic crisis may be only just beginning?  The 10 percent decrease in 2008 was also significantly worse than the 8.90 percent manufacturing slump of 1974.  

For months, many economic optimists insisted that manufacturing’s problems were limited to the housing and automotive sectors.  Everything else would experience the woes of a significant recession – nothing worse.  Certainly these two troubled industries performed terribly in 2008.  Real output in motor vehicles and parts nosedived 25.45 percent (its worst annual performance in history), while production of appliances, furniture, and carpeting together sank by another all-time worst of 20.94 percent.  (Inflation-adjusted growth in construction supplies, strangely, was off only 13.45 percent.)

Yet remove automotive from manufacturing and American industry still shrank by 8.92 percent in real terms in 2008.  Steel and other primary metals performed even worse, with output nosediving by just over a third.  That figure represented the industry’s worst showing since inflation-adjusted output plummeted 38.16 percent in 1982,  But even relatively strong performers like high-tech hardware and semiconductors dropped considerably.  Except for the bursting of the tech bubble in 2001 (when output fell 10.91 percent), the former’s 6.91 percent drop in 2008 represented its worst year since 1970.  As for semiconductors, its 9.81 percent real output swoon in 2008 was the second-worst in history.  (In 1974, the fledgling sector shrank by  18.69 percent.)

Other industries found themselves in similar straits.  For example, the 12.06 percent decrease in the production of fabricated metal products in 2008 beat the previous record 9.51 percent falloff by nearly 27 percent.  Machinery’s 12.02 percent production decline was its third-worst (trailing only the 22.24 percent drop of 1982 and the 17.81 percent decrease of 2001.

Chemicals suffered a record production decrease of 11.62 percent – nearly 25 percent worse than 9.31 percent shrinkage it experienced in 1974.  Plastics and rubber production, meanwhile, combined declined 11.63 percent in 2008 – a tumble exceeded only by the 18.29 percent implosion of 1974.    

Here’s another way to look at the situation: The last time overall manufacturing output was as low as it had sunk by December, 2008 was March, 2000.  That’s eight lost years for the sector.  During this period of zero net growth for American industry, however, the entire economy expanded by 19.07 percent in real terms.  

Similar points can be made about a wide range of specific manufacturing sub-sectors.  Real output in motor vehicles and parts combined is now back to November, 1993 levels – that’s more than 15 lost years.  Primary metals production is at its lowest point since its data series began in 1972.  In machinery, the United States is back to August, 1995 levels of output.  In plastics and rubber production, it’s February, 1997.  And in manufacturing omitting high-tech hardware, the nation has regressed to December, 1996.  High-tech hardware, semiconductors (a subset of that sector), and chemicals are among the few sectors where American manufacturing has held to 21st century output levels.  

Numerous commentators have referred to the 1990s as a “lost decade” for Japan, a period when economic growth virtually ground to a halt.  Clearly, shortsighted and downright incompetent national economic policies have led to a similar lost decade for much of domestic U.S. manufacturing – and even worse deterioration in some sectors.  The longer such losses are allowed to pile up, the longer the nation’s road to genuine recovery will be.

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