Decline or growth? Making sense of US manufacturing data

Posted on 18 Mar 2015 by Tim Brown

With US manufacturing data showing recent growth, is the US manufacturing industry really in a perpetual state of decline? Well that depends on whom you ask.

According to the latest US manufacturing data, the US industrial sector has had a growth spurt in recent months. But according to some pundits, when looking at a longer timeline, US manufacturing is still in a state decline.

Bob Stokes from financial forecasting and analysis firm Elliot Wave International says the US manufacturing industry is “shrinking”.

“In 1970, more than a quarter of all US employees worked in manufacturing,” Stokes says. “By 2010, one in 10 did. Since 2010, the trend in manufacturing jobs has barely changed.”

Total manufacturing jobs in the US - image courtesy of
Total manufacturing jobs in the US – image courtesy of

As evidence, Stokes cited a chart from the Elliot Wave Theorist newsletter which shows that, while the number of American manufacturing jobs has risen since 2010, the rise is relatively slight.

The chart shows that in the period between March 31, 2010 and January 31, 2015, the number of American manufacturing jobs grew to 12.33 million, an increase of 864,000.

However, Stokes highlights that despite the recent increase, the total number of people employed in manufacturing is still some 5.27 million less than in 1998 and that the recent rate of increase is very moderate by comparison to previous periods of industrial growth.

Stokes also cites as evidence the latest Institute for Supply Management’s (ISM) Purchasing Manufacturing Index which he says highlights that US manufacturing is experiencing only very marginal growth by comparison with the decline in manufacturing jobs over the last 15 years.

A “Purchasing Manufacturing Index” (PMI) is a measure of the health of the manufacturing industry, based on surveys of private companies.

The ISM’s PMI’s are based on the indicators production level, new orders, supplier deliveries, inventories, and employment level.

The ISM’s PMI shows February 2015 has having the slowest growth in the American manufacturing industry in the past 13 months.

A different perspective paints a positive picture

Another organisation that releases regular US manufacturing data is finance information company Markit Institute.

Markit Institute’s PMI is based on new orders, output, employment, suppliers’ delivery times, and stock of items purchased.

The most recent Markit PMI showed a result of 55.1 for February, up from 53.9 in January, where result above 50 indicates growth.

The Markit PMI particularly showed a sharp increase in output and new orders while delays in the delivery of items resulted in the accumulation of backlogs of work, and a record increase in finished good stocks.

According to the Markit PMI, February had the highest increase in manufacturing production growth in four months.

The rise in manufacturing production growth was credited to increased new businesses, which resulted in a rise in the number of new orders.

Contrary to Stokes’ claim, assistant professor of finance at the Johnson Center for Political Economy at Troy University, and member of the Financial Markets Working Group in the Mercatus Center at George Mason University, Thomas L. Hogan, says the US manufacturing industry is growing.

In a December 2014 article in USA Today, Hogan wrote that the American manufacturing industry “produces more stuff every year than it did the year before”.

“Prior to the 2008 recession, we manufactured more stuff in the United States than had ever been manufactured by any country, ever, in the history of the world.” “Is that decline?” wrote Logan.

In the article, Logan writes that the number American manufacturing jobs has been decreasing since 1975, while the number of American non-manufacturing jobs has skyrocketed.

“American workers have moved out of manufacturing and into industries where they are most needed,” Logan wrote.

“Yet despite having fewer workers, the manufacturing sector still keeps producing more stuff every year. Producing more stuff with less work is not decline.

“Think about it: If ‘decline’ means working less and making more, then I want to be in decline.”

Backing up Logan’s claim, data compiled by Trading Economics, shows US industrial output has increased year on year since 2010 and despite occasional periods of decline has increased overall since 1983.

US industrial production year on year - image courtesy of
US industrial production year on year – image courtesy of

Logan acknowledges that China’s manufacturing industry has exploded in last two decades, and now likely produces more goods than the US.

“But”, Logan wrote, “the jobs lost to China are mostly low-skilled, low-paying jobs.

“We should be glad those jobs are moving overseas as long as we keep creating higher-paying jobs here at home.”

Logan wrote that China’s economic growth has benefited the American manufacturing industry.

“[As] China gets richer, its people buy more stuff from the United States,” wrote Logan. “Much of the equipment used by China’s manufacturing sector is made in the USA.

“Making good high-quality products in the United States while the cheap stuff is made abroad is not a sign of decline.”