Manufacturing’s job crisisManufacturing’s job crisisManufacturing employment (in thousands)

1950

14,013

2003

14,525

1998

17,560

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

19,000

20,000

Productivity, demand, and tradeProductivity, demand, and trade

"The share of consumer spending devoted to manufactured goods has declined over time both in the United States and in other industrialized nations. As consumers' income has risen, they have increased their purchases of good but boosted their spending on services - including medical care, notably, - even more. In 2000, 42 percent of U.S. consumer spending was devoted to goods, down from 52 percent in 1979 and 67 percent in 1950." (CBO 2004).

"Most [manufacturing jobs] by far were eliminated because companies used new technologies, management techniques, and other methods to achieve huge gains in productivity... And the jobs lost to productivity gains will not come back, regardless of what policymakers do in Washington." John Berry (2003)

"The loss of jobs over the past three years is attributable largely to rapid declines in the demand for industrial goods and to outsized gains in productivity that have caused effective supply to outstrip demand. Protectionism will do little to create jobs; and if foreigners retaliate, we will surely lose jobs." (Alan Greenspan 2004)

ProductivityProductivityProductivity growth rates, manufacturing vs. non- farm business

sector

3.52%

4.29%4.44%

2.23%

3.00%

3.74%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

1987-2003 1997-2003 2001-2003

manuf actur ing non-f ar m business

DemandDemandTrade-adjusted share of manufacturing in total domestic

demand

2003

20.5%1998

19.7%

12%

13%

14%

15%

16%

17%

18%

19%

20%

21%

tr ade-adjusted manuf actur ing shar e

Ratio of domestic manufacturing output to demand

1997

89.2%

2003

76.5%

1991

94.2%

65%

70%

75%

80%

85%

90%

95%

100%

Trade deficit in manufacturesTrade deficit in manufactures Manuf actur ing as a share of total demand: domestic output plus net impor ts

domestic output

net imports

0%

5%

10%

15%

20%

25%

An accounting frameworkAn accounting frameworkA familiar identity in economics relates employment, output, and productivity. (1) yLY This identity is updated to reflect the fact that domestic output is not always and everywhere equivalent to demand: (2) yLdYd

Expressing (2) in rates of change and re-arranging terms yields:

(3) dyYL dˆˆˆˆ

1998-20031998-2003Figure 4: Contributions to manufacturing employment change,

1998 - 2003

Net impor ts

-58.5%

Domestic f actor s

(demand + pr oductivi ty)

-41.5%

Demand

+70.1%

P r oductivi ty

-111.5%

-160%

-110%

-60%

-10%

40%

90%

2000-20032000-2003Contributions to manufacturing employment, 2000-2003

Net impor ts

-34.2%

Domestic f actor s

(demand + pr oductivi ty)

-65.8%

Demand

+5.7%

P r oductivi ty

-71.6%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

2001-20032001-2003Contributions to manufacturing employment, 2001-2003

Net impor ts

-42.2%

Domestic f actor s

(demand + pr oductivi ty)

-56.8%

Demand

+40.3%

P r oductivi ty

-97.1%

-140%

-90%

-40%

10%

60%

A closer look: durable vs. non-A closer look: durable vs. non-durablesdurables

Durable and non-durable manufacturing employment

2004

8,882

1998

10,943

2004

5,428

1998

6,694

4,000

5,000

6,000

7,000

8,000

9,000

10,000

11,000

12,000

dur able non_dur able

Contributions to job-loss: 1998-2003Contributions to job-loss: 1998-2003

Contributions of domestic factors and net imports to job-loss, 1998-2003

44.9%

25.9%

55.1%

74.1%

0%

20%

40%

60%

80%

100%

120%

durable nd

domestic factors net imports

Contributions to job-loss: 2000-2003Contributions to job-loss: 2000-2003

Contributions of domestic factors and net imports to job-loss, 2000-2003

70.0%

48.3%

30.0%

51.7%

0%

20%

40%

60%

80%

100%

120%

durable nd

domestic factors net imports

Contributions to job-loss: 2001-2003Contributions to job-loss: 2001-2003

Contributions of domestic factors and net imports to jo-loss, 2001-2003

63.8%

27.2%

36.2%

72.8%

0%

20%

40%

60%

80%

100%

120%

durable nd

domestic factors net imports

Productivity growth: durables vs. Productivity growth: durables vs. non-durablesnon-durables

23.3%

16.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

dur ables non_dur ables

Productivity growth, 1998-2003, durables vs. non_durables

Productivity: Durables – NAICS Productivity: Durables – NAICS 3341 and 33443341 and 3344

23.3%

16.7%

10.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

dur ables non_dur ables dur ables - hi tek

Productivity including: (durables - NAICS 3341 & 3344)

Manufactures trade deficit + Value Manufactures trade deficit + Value of the dollarof the dollar

Value of the dollar and the manufacturing trade deficit

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

1973 1978 1983 1988 1993 1998 2003*

*Estimate.

Trad

e de

ficit

shar

e of

GDP

(%

)

80.00

90.00

100.00

110.00

120.00

130.00

Real

$ In

dex

Dollar Value (right)

Manufactures Trade Deficit (left)

Real, broad $ index: Time to Real, broad $ index: Time to breathe easy?breathe easy?

Real, broad trade-weighted dollar index

March 2004

100.42

Feb 2002

113.75

80

85

90

95

100

105

110

115

120

Broad, major vs. OTIP indicesBroad, major vs. OTIP indicesMovement in dollar indices since February 2002

-11.7%

-21.5%

2.1%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

Broad Major OTIP

Top 6 Deficit trading partnersTop 6 Deficit trading partnersLargest Bilateral Trade Deficits

China 23.1%Japan 12.3%Canada 10.2%Mexico 7.6%Malaysia 2.7%Taiwan 2.6%Euro Area 14.1%

Sum 72.6%

Deficit-weighted exchange rate Deficit-weighted exchange rate changechange

Dollar indices plus trade-deficit weighted index

-11.7%

-21.5%

2.1%

3.4%

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

Broad Major OTIP td_weighted

Policy optionsPolicy options

1) Dollar policy: continue negotiations with 1) Dollar policy: continue negotiations with countries that peg their currency for countries that peg their currency for competitive advantagecompetitive advantage

2) Legacy cost relief for retiree health and 2) Legacy cost relief for retiree health and pension benefitspension benefits

3) Health care, as always 3) Health care, as always