Recent Manufacturing Slump Dragging On
Tuesday, January 22, 2013
|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).|
Signs have multiplied over the last week that President Obama will face a continuing manufacturing recession as he begins his second term in office. New data seem to confirm that the sector of the U.S. economy whose sharp bounce-back led the recovery from mid-2009 through 2011 isn’t shaking the slump that overcame it beginning early last spring.
As a result, progress may be stalling – and even reversing – on achieving the president’s vital goal of creating a production-focused “economy built to last” to replace the disastrous borrowing- and spending-led growth of the previous decade. The new statistics also strongly challenge the widespread claims – by the President and many others – that domestic manufacturing has begun or will soon begin an historic comeback fueled by “reshoring” from abroad.
From last April through November according to the Federal Reserve’s index of industrial production, inflation-adjusted manufacturing output fell on net. This seven-month period of decline exceeded the technical definition of a recession for the overall economy – two consecutive quarters (six months) of contraction.
The December figures released by the Fed last week snapped that slump, as real manufacturing production rose by 0.8 percent. At the same time, this improvement was slower than the 1.25 percent expansion recorded in November. Moreover, the new manufacturing production figures showed that the sector’s output increased in 2012 at the slowest rate during the current overall economic recovery.
The widely followed Institute for Supply Management manufacturing survey also returned to expansion mode in December, with key sub-components readings like new orders and production remaining in positive territory, employment showing even stronger gains, and imports and exports
both returning to the black after contracting for four and six months, respectively.
But the latest monthly surveys from regional Federal Reserve banks in New York, Philadelphia, Chicago, and Richmond all show deteriorating conditions for domestic industry. Indications of manufacturing weakness also showed up in Federal Reserve’s mid-January Beige Book – which provides more impressionistic descriptions of economic activity throughout the nation.
The Fed’s economy-wide industrial production index showed that real output in 2012 rose 2.74 percent on a December-to-December basis – well below the 4.74 percent pace of 2011 and the 7.49 percent increase in 2010. The December-to-December growth also was slower than the November-to-November level of 3.44 percent but faster than the 2.12 percent rate from October-to-October.
In addition, these gains still leave manufacturing production 4.51 percent below its level when the Great Recession began exactly five years ago.
Durable goods production, a majority of manufacturing output, rose 1.02 percent in December, down from the 2.08 percent increase in October. Manufacture of these products increased a healthy 5.42 percent in 2012, but that rate, too, trails the 2011 jump of 7.70 percent and the 11.66 percent surge of 2010. Durable goods output, which nosedived by 27.17 percent during the recession, is now back to within 0.85 percent of its December, 2007 level, when the recesson began.
Non-durable goods production edged up only 0.56 percent in December – but that growth was nearly twice that of November’s 0.30 gain. Non-durables production actually fell in 2012, by 0.23 percent, after increasing by 1.56 percent in 2011 and 3.08 percent in 2010. Output of non-durables is still 9.03 percent below its pre-recession level in December, 2007.
Major manufacturing sectors that enjoyed inflation-adjusted production increases in 2012 included fabricated metal products; machinery; aerospace; computer and electronics products; electrical equipment, appliances, and components; and motor vehicles and parts. Decliners included primary metals, chemicals, paper, and textiles.
More major evidence of ongoing and even worsening competitiveness problems in domestic manufacturing has emerged recently – principally the three record monthly trade deficits amassed by the sector since August, and rising import penetration
, as just documented in a new U.S. Business and Industry Council study (available at http://americaneconomicalert.org/USBICImportPenetrationReport2013Final.pdf).
The brightest face that can reasonably be put on this news is that U.S.-based manufacturing is starting to look like the rest of the American economy – barely slogging along. More than four years after the financial crisis’ peak and despite the trillions of dollars’ worth of stimulus provided by the President, Congress, and of course the Fed, it’s a pitiful level of bang for buck – not to mention indebtedness.
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).