US Manufacturing Still in Trouble, Warns ITIF

US Manufacturing Still in Trouble, Warns ITIF

A March 2015 report by the Congressional Research Service painted a "rosier picture" of U.S. manufacturing than is warranted, according to a critique by ITIF.

Manufacturing in the United States is not as strong as recently portrayed by a Congressional report, a Washington think tank has warned, and legislative action is needed to bolster the sector.

In a March 2015 report, “U.S. Manufacturing in International Perspective,” the Congressional Research Service found that the United States “has performed well in manufacturing, compared to other high-income economies” when viewed over the period from 1990 to 2013.

CRS, the independent research arm of Congress, stated in its report that the U.S. had been an “attractive” destination for foreign direct investment in manufacturing. And it noted that declines in manufacturing employment were similar in other developed economies to the United States.

But in a critique released August 24, the Information Technology and Innovation Foundation stated that the CRS report “paints a rosier picture of U.S. manufacturing than is actually warranted” and warned that U.S. manufacturing has “barely recovered from the Great Recession.”

The ITIF report criticized these aspects of the CRS analysis:

Manufacturing job loss: The CRS report, says ITIF, uses “unofficial data and a truncated period of analysis” to suggest a 12% loss of manufacturing jobs between 2003 and 2013. But ITIF, using Bureau of Economic Analysis (BEA) data for 2000 to 2013, found that U.S. manufacturing employment actually declined by 30.7%.

U.S. manufacturing output: ITIF charges that the CRS report compares “raw U.S. manufacturing output to other nations and concludes nothing is amiss,” but that when ITIF compared the output as a percent of GDP, U.S. performance “was stagnant at best.” ITIF adds that BEA output data are likely overstated, and that “U.S. output has probably decreased.”

Signs of growth in U.S. manufacturing: The CRS report points to encouraging signs for domestic manufacturing such as strong manufacturing R&D, healthy foreign direct investment (FDI), and a high percentage of domestically manufactured inputs. But ITIF counters that “when controlling for industrial composition, the results are much less favorable for R&D.” ITIF said the CRS report also “suggests that by not differentiating between greenfield and brownfield investments,” it does not tell the full story on FDI, “which actually is less encouraging.” And given the size of the United States, ITIF points out, “having a significant amount of domestic inputs is natural.”

ITIF stressed that Washington still needs to take action to strengthen manufacturing, including legislation to “reduce the effective corporate tax rate; boost investment incentives, including for R&D; better enforce trade rules globally; and support manufacturing innovation and workforce development.”

“Clearly, Congress needs to act to get U.S. manufacturing back on track,” said Robert Atkinson, president of ITIF and one of the report’s co-authors. “Policymakers must take seriously the gravity of this situation. It is time to reinvigorate American manufacturing before it is too late.”

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