The Half-Truths About U.S. Manufacturing

There's a lot of good news about the U.S. manufacturing industry right now. For instance, the sector saw a growth rate of 12.6% in 2010, according to the U.S. Bureau of Economic Analysis. Last month, manufacturing added 33,000 jobs, with most of those in industrial plants, such as machinery and fabricated metal producers. And since December 2009, durable goods manufacturing has added 233,000 jobs, based on data compiled by the U.S. Bureau of Labor Statistics.

So things are looking up for U.S. manufacturers, but apparently this growth isn't enough for some industry observers, judging by the so-rose-colored-you-could-prick-yourself-on-the-thorns glasses these pundits are wearing. I learned more details on this trend in a recent blog posting by Alan Tonelson, a research fellow with the non-partisan U.S. Business and Industry Council, who refers to the trend as "manufacturing Pollyanism."

Tonelson cites a recent op-ed in the Wall Street Journal that seems to be celebrating American ingenuity and innovations under the guise of telling "the truth about U.S. manufacturing," but what it actually does is bend and twist reality more effectively than the special effects in the movie "Inception." The author, Mark Perry, a professor at the University of Michigan-Flint, attempts to brush aside the millions of layoffs the U.S. manufacturing has seen over the past decade by pointing to the increase in productivity.

To make his point, Perry repeats the old canard that equates the loss of manufacturing jobs right now with the loss of agricultural jobs a century ago. Perry, though, puts his own spin on the story when he writes:

"Our world-class agriculture sector provides a great model for how to think about the evolution of U.S. manufacturing. The U.S. produces more agricultural output today with only 2.6% of our work force involved in farming than we did 100 years ago, when farming jobs represented almost 40% of the labor force. Likewise, we're able to produce twice as much manufacturing today as in the 1970s with about seven million fewer workers. That means yesterday's farmhands and plant workers can become today's computer engineers, medical doctors and financial managers."

It's certainly a unique proposition that all types of skills are so easily portable; plant workers need no longer worry about being laid off because they can just transfer their talents over to the practice of medicine. One wonders why Prof. Perry didn't include "university professors" among the list of professions that laid-off assembly line workers could consider as their next job.

As Tonelson sees it, Perry is ignoring "voluminous evidence of major structural weaknesses in domestic manufacturing," such as the research that points to the alarming drop in domestic production in more than 100 sectors, including "machine tools, turbines and turbine generator sets, broadcast and wireless communications equipment, advanced electronics measuring and testing gear, and injection molding machines."

In another recent post to his blog titled "Propagating Productivity Myths," Tonelson finds similar mis-reporting of manufacturing's "growth" by the National Association of Manufacturers. Specifically, he points to an entry on the NAM website, written by Frank Vargo, that states in part:

"Manufacturing productivity has grown so rapidly that in 2010 the average factory worker produced 41 percent more than in 2000. When output does not grow as rapidly as productivity, fewer jobs are needed, and that has been happening since 2000."

Tonelson, however, calls shenanigans on the NAM's conclusion. He writes:

"The official Bureau of Labor Statistics cited can no longer justify such confident equations of productivity gains with innovation or broader efficiency gains at least not as the latter are typically understood. Why not? Because as even the BLS admits, its methodology for calculating the headline labor productivity numbers discussed by Vargo appears to be deeply flawed. Specifically, this methodology can too often enable increases in offshoring activity to result in recorded productivity increases."

Or, to put it succinctly, it could very well be that the productivity gains in U.S. manufacturing stem, at least in part, from offshoring production and labor to low-cost countries.

Those who point to the productivity gains among U.S. manufacturers also often tend to gloss over the substantial gains that China, too, is making in productivity. A recent report from analyst firm ARC Advisory Group, for instance, notes that "China continues to make investments in automation as a result of strong domestic demand driven by government stimulus, the recovering global economy, and buoyant foreign direct investment." So any suggestion that the United States alone is enjoying the benefits of automation is, at best, wishful thinking.

Yes, we need to celebrate every iota of progress that American manufacturers are making in their recovery from the recession. Playing politics with job and productivity numbers, however isn't doing anybody any good -- not the laid-off workers, not the industries that have left the United States for offshore production and may never return, and certainly not the remaining industries that are looking for a focused and comprehensive domestic manufacturing strategy that acknowledges that China is a formidable competitor. And that if we don't do something to level the playing field, we may wake up someday to find that even those plum doctor, engineering and financial planning jobs Perry was talking about have been outsourced, too.