President Elect Trump was elected on the thesis that he would bring back manufacturing jobs to the U.S. and stop them from leaving. Before we can gauge the future success or failure of this proposed initiative we need to understand the current landscape for manufacturing jobs in the country.
The first myth that needs to be busted is that the US doesn’t make anything anymore. Our manufacturing output is the highest it’s ever been. While it is true that China displaced the US as the largest manufacturing nation in 2010, the US has outperformed most other wealthy countries in the growth of “value added” which is a measure of the economic contribution of manufactures in the design, assembly and marketing of the product.
While our manufacturing output has been stellar, we have seen a downshift in employment that started decades ago. This was due to displacement technologies that the movement of manufacturing to areas with cheaper labor to create better profit margins.
When China entered the World Trade Organization, the trade balance got bigger and manufacturing employment fell in the U.S. Advances in technology and cheaper labor allow for lower prices and better profit margins. This is a price we do pay for living in a capitalist, shareholder nation.
From Calculated Risk:
The Census Bureau shows us that even though manufacturing is the 4th biggest employment sector in the U.S. it is now less than 9% of the total work force.
Employment in manufacturing has been falling while output is growing. A lot of the productivity gains have come in the manufacturing sector, and while this is great for output it impacts total employment.
Will we really go into a trade war with China? I don’t believe Trump will start a trade war because while near 48% of the US population are workers, 100% of them are consumers and the US is a consumption based economy. Consumers will be negatively affected by a trade war and that will impact the economy, even if it results in some gains in manufacturing. So far President Elect Trump has not talked about taxing companies who are headquartered in the U.S. but do manufacturing in other countries. He has talked about making the U.S. more business friendly, and taxing current manufacturing plants seems to be in direct conflict with this.
So, let’s be realistic. Regardless of who is president, we cannot expect to gain 5-9 million manufacturing jobs in the next 4-8 years. A more realistic scenario is that while output may continue to grow with future advances in technology, jobs in this sector will likely continue to shrink, stay flat or at best grow slowly against population growth.
The strong dollar, too puts limits on manufacturing growth expectations. With a much stronger dollar, oil and commodities will get hit. So much of the world imports follow oil prices.
Another “must-follow” on twitter:
Higher oil prices = positive (!) for US manufacturing activity. Goods news ahead if oil prices continue rising
An infrastructure bill could do more for employment in the short term then dithering around the edges of the manufacturing sector by passing out favors to some companies that promise to keep jobs in America while threatening punishment on others. Steve Bannon’s trillion dollar infrastructure plan actually makes sense if we can find workers that are capable to do this type work. Last I heard we were planning on deporting some of those people. There is a big difference for economic output between hiring existing working crews to work than hiring new people who don’t have jobs. The job openings for construction jobs is growing every year with hours worked being at all time highs for a reason. This is a reason why I like Bannon’s go big thesis to make sure we target areas of high unemployment of men of all ages. It might be wishful thinking with unemployment claims low and job openings above 5.5 million but one can hope.
I hope this article gives you some perspective on the state of manufacturing in America. We have new President and we should hope for his success, as his success means America is doing great.
On another note, my readers and followers on social media know my love hate relationship with the Anti American bears. These are people who call for the collapse of America every year with worthless economic rants. I hate smoking, but every 15 years I am going to pull out a cigar and take a photo of me smoking it, to make a point that America hasn’t collapsed yet, like the extreme left and right talk about every day. The stock markets are at all time highs and we still have 74 straight months of job gains. Recessions come and go but 24/7 bears always stay 24/7 bears ( Hence the 24 hour fitness shirt for you)
Merry Christmas Bears !!!!
Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his own facebook page https://www.facebook.com/Logan.Mohtashami