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May 30, 2003

The Manufacturing Economy is Hurting

There once was a time when belching smokestacks were seen as a symbol of progress, and cities and towns were proud to be associated with them.  Sometime around the mid-1950's, choking in smog, our views changed.  We still wanted the jobs that factories provided, but preferred to keep the smokestacks out of sight.

The economy of 2003 has served up yet another variation on our relationship and attitudes towards manufacturing.  For the situation today has both smokestacks and their jobs disappearing.  Yet the overall economy has managed to keep afloat.

It has already been a double dip recession for the U.S. manufacturing economy.  Their once-promising recovery in early 2002 from the depths of the 2001 downturn was cut off in late summer, when export orders tanked and business spending growth failed to materialize.  The output of our manufacturing sector has now fallen to within an eyelash of its low point of the Fall of 2001, with no sign yet of having found bottom.

Of course, we must remember that the industrial economy is falling from some very lofty heights.  Computers and electronics products manufacturers, for instance, recorded output in 2000 that was two and a half times larger than what they were producing only three years earlier.  And even though more conventional industries like steel and autoscannot claim anything like that record, there's no question that at the close of the longest running economic expansion in our modern history, the goods-producing side of the economy was running hot.

Still, the steady stream of bad news from the manufacturing sector cannot be called anything but bad news, especially for Indiana.  To make matters worse, the steady improvements in worker productivity -- that would challenge manufacturers to increase payrolls in the best of times -- have made the decline fall doubly hard on workers.

Yet the contrast between the health of manufacturing and that of the overall economy is stark.  If you rank each the last five recessions according to the severity of the downturns they produced inmanufacturing employment, the recession of 2001 ranks with the harshest we have ever seen.  Now eight quarters beyond the official beginning of the recession in the beginning of 2001, nearly 10 percent of manufacturing jobs have been eliminated.

For the overall economy, it’s a different story.  Ranking the same recessions according to the performance of Gross Domestic Product, the recession of 2001 clearly emerges as the mildest recession in the past 30 years.  On average, it takes the economy about five quarters before its output climbs back up to its pre-recession peak -- this time it has taken us only three.

So what is going on?  Broadly speaking, there are two explanations.  One is that this has simply been a very tough recession for manufacturing.  Certainly we've seen some in the past.   The comforting aspect to this point of view is that manufacturing has bounced back from previous recessions, and thus can be expected to get off of its sick bed from this one as well.

The second read of current events is more unsettling.  That is that the recent downturn has set into motion shifts in our economic mix that will not easily be undone, if ever. Production-related jobs lost to technological change or global competition will not come back, at least in the same form, when demand starts to rise again.  Other jobs, of course, can grow in their stead -- but the challenge for communities everywhere will be to find and capture those jobs.

Link to this commentary: https://commentaries.cberdata.org/368/the-manufacturing-economy-is-hurting

Tags: manufacturing, jobs and employment


About the Author

Pat Barkey none@example.com

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.

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