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The State of Manufacturing in the United States

July 2010

Manufacturing plays a vital role in the economy of the United States. This overview takes both a long- and short-term view, outlining the predominant trends and market indicators that have affected U.S. manufacturing over the last several decades.

Long-Term Downtrend in U.S. Manufacturing, 1965-2005

Despite an upward trend in overall production and manufacturing, the portion of U.S. production attributable to manufacturing has steadily declined since 1965. Large increases in the construction, finance, insurance and real estate, and services industries during this period played a significant role in reducing manufacturing’s impact on overall U.S. production. In 1990, services surpassed manufacturing as the largest contributor to overall private industry production, and then the finance, insurance and real estate sector surpassed manufacturing in 1991.

Source: Bureau of Economic Analysis, U.S. Department of Commerce

Source: Bureau of Economic Analysis, U.S. Department of Commerce

As a percentage of total nonfarm employment, manufacturing employment showed a clear downward trend after 1966 as total employment has grown markedly over this period, while manufacturing has remained somewhat steady. Productivity, on the other hand, has steadily increased since 1987. Using an output-per-hour index from the Bureau of Labor Statistics (BLS), manufacturing productivity exceeds that of overall nonfarm business. Durable manufacturing also consistently shows higher productivity than nondurable manufacturing during this period.

Source: Bureau of Labor Statistics, U.S. Department of Labor

In addition, shipments and inventories of all manufactured products steadily increased between 1965 and 2000, before falling in 2001 and 2002. After 2002, shipments resumed an upward trend with inventories following in 2004.

Between 1983 and 2005, U.S. exports grew by 340 percent, with exports of manufactured goods increasing by 407 percent over the same period. In 1983, the primary export commodities were transportation equipment, computer and electronic products, agricultural products, machinery (except electrical), chemicals, and food and kindred products. Together these commodities totaled 69 percent of total U.S. exports. In 2005, the primary export commodities were largely the same: computer and electronic products, transportation equipment, chemicals, machinery (except electrical), miscellaneous manufactured commodities, and agricultural products. Together these commodities accounted for 69 percent of total U.S. merchandise exports.

Between 1983 and 2005, exports of computer and electronic products grew by 493 percent, overtaking transportation as the leading export commodity (which grew by 410 percent). Though agricultural products exports grew by 26 percent during this period, its share of overall merchandise exports fell from 12 percent in 1983 to 4 percent in 2005.

Source: Bureau of the Census, U.S. Department of Commerce

In 1983, the top trading partners for U.S. exports were Canada (21 percent of total merchandise exports), Japan (11 percent), United Kingdom (5 percent), Mexico (4 percent), Germany (4 percent), the Netherlands (4 percent), Saudi Arabia (3 percent), France (3 percent), Korea (3 percent), and Belgium and Luxembourg (2 percent).

In 2005, the top markets for U.S. exports were Canada (24 percent), Mexico (13 percent), Japan (6 percent), China (5 percent), United Kingdom (4 percent), Germany (4 percent), South Korea (3 percent), the Netherlands (3 percent), France (2 percent), and Taiwan (2 percent). Between 1983 and 2005, exports to Mexico increased by 1,228 percent, allowing it to replace Japan as the second-largest market for U.S. exports.

Source: Bureau of the Census, U.S. Department of Commerce

Short-Term Trends and the Current Crisis, 2005-2009

More recently, manufacturing production showed steady increases between the end of 2001 and 2007. During this period manufacturing production index grew by 16 percent. The index for computer and electronic products saw the highest growth, increasing by 85 percent between 2001 and 2007. However, after 2007, the production index for manufacturing fell dramatically to bottom out at 85.4 in the second quarter of 2009, levels last seen in 1998. Between 2005 and 2009, nearly all of the manufacturing industries measured saw a decrease in production. However, two commodities showed growth during this period: computer and electronic products (up 31 percent) and aerospace and miscellaneous transportation (up 19 percent).

Source: Federal Reserve, “Industrial Production and Capacity Utilization, G17”

Manufacturing employment also held steady until roughly midway through 2008, when it began to decrease. However, productivity in the manufacturing sector continued to increase during this period.

Like other indicators, shipments showed a dip between 2000 and 2002, with increases after 2002 until it dropped sharply in 2009. Inventories followed the same pattern but with a slight lag behind shipments, rebounding in 2004 where shipments started to increase in 2003.

Between 2003 and 2008, the producer price index (PPI) showed increases in input commodity prices, with a large increase in 2008. That year, the index for all commodities increased to 189.6, compared with a PPI of 172.6 the previous year. This increase was likely driven by increasing fuel and energy prices, which increased by 37 points between 2007 and 2008. However, in 2009, the index fell back down to its lowest point since April 2007. Similarly, the export price index for manufactured goods dropped between July 2008 and March 2009, beginning to increase again in April 2009.

Steadily increasing after 2002, in 2006 corporate manufacturing profits peaked at its highest point in ten years, which was a 538 percent increase over its 2002 value. After 2006, corporate manufacturing profits declined to end 55 percent lower in 2009. In 2009, overall profits for domestic industries increased, but manufacturing profits still showed a decrease. Durable goods manufacturing showed negative profits between 2001 and 2003, largely due to declines in computer and electronic products. With the exception of 2005, motor vehicle profits have been negative since 2000, and electrical equipment, appliances, and components have shown negative profits since 2007. Nondurable goods profits seem to be largely driven by large changes in petroleum and coal products and, to a lesser extent, chemicals.

Source: Bureau of Labor Statistics, Department of Labor

Source: Bureau of Economic Analysis, U.S. Department of Commerce

Between 2005 and 2009, overall U.S. merchandise exports grew by 17 percent, with exports of manufactured goods increasing by 14 percent over the same period. In 2009, overall U.S. merchandise exports fell by 18 percent from the previous year, after average annual growth rates of 13 percent between 2005 and 2009. Exports of manufactured goods also fell by 17 percent in 2009.

Between 2005 and 2009 the commodities with the highest exports remained the same, with transportation equipment replacing computer and electronic products as the highest export. Between 2005 and 2009, computer and electronic products exports fell by 5 percent, while transportation equipment increased by 4 percent. Agricultural products (up 59 percent), miscellaneous manufactured commodities (up 33 percent), chemicals (up 28 percent), and machinery (except electrical, up 9 percent) also saw increased exports over this period.

Between 2005 and 2009, exports to China increased 69 percent, while exports to Canada (down 3 percent) and to Japan (down 6 percent) fell. Canada and Mexico remained the top two markets for U.S. exports.

The Current State of Manufacturing, Early 2010

In the first quarter of 2010, the manufacturing production index increased by 4 percent compared to the first quarter of the previous year, with both durable and nondurable manufacturing reporting increases. Among manufacturing industries, motor vehicles and parts (up 35 percent), primary metals (up 34 percent) showed the highest increase in production compared to the first quarter of 2009.

While manufacturing employment was still lower through the second quarter of 2010 than in the second quarter of the previous year, it has been increasing each month since January 2010. In the first six months of 2010, manufacturing employment has grown faster than overall nonfarm employment.

In the first quarter of 2010, manufacturing productivity increased by 7 percent compared to the first quarter of 2009. This is after a 2 percent decrease in the first quarter of 2009, compared to the first quarter of the previous year. Durable and nondurable manufacturing productivity also increased, with durable manufacturing productivity up 9 percent compared to the first quarter of 2010 and nondurable manufacturing productivity up 5 percent. In comparison, overall nonfarm business productivity increased 6 percent during the first quarter of 2010 compared to the first quarter of the previous year.

Inventories have rebounded slightly after dropping since the second quarter of 2008, though they still remained lower in the first quarter of 2010 than in the same quarter of the previous year. Shipments of manufacturing goods, however, were 9 percent higher in the first quarter of 2010 than in the same quarter of 2009.

The producer price index for all commodities, as well as that for fuels and related products, has also showed increases in the beginning of 2010, compared to the same months in 2009. This is also true for the export price index for manufactured goods, which has continued to increase in the first quarter of 2010 and reached mid-2008 levels.

Following declines in 2009, profits for domestic industries increased in the first quarter of 2010. Compared to the first quarter of 2009, domestic industries showed an increase in profits of 44 percent with manufacturing showing a 71 percent increase. Despite overall declines in 2009 for domestic corporate profits, chemical products, and other nondurable goods showed increases in corporate profits that year. In the first quarter of 2010, computer and electronic products (up 231 percent); motor vehicles, bodies, trailers and parts (up 113 percent); petroleum and coal products (up 48 percent); and machinery (up 20 percent) showed increased profits compared to the first quarter of 2009.

In the first quarter of 2010, overall U.S. merchandise exports increased by 20 percent compared to the first quarter of 2009, with manufactured goods exports increasing by 20 percent. As in 2009, the highest export commodities were transportation equipment, computer and electronic products, chemicals, machinery (except electrical), agricultural products, and miscellaneous manufactured commodities.

In the first quarter of 2010, the primary markets for U.S. merchandise exports were Canada, Mexico, China, Japan, the United Kingdom, Germany, South Korea, Brazil, the Netherlands, and Singapore. With the exception of the Netherlands, exports to all of these countries increased in the first quarter of 2010, compared to the same quarter in 2009. Notably, exports to Canada increased by 22 percent, Mexico by 28 percent, and China by 47 percent over this period. Exports to the two NAFTA partners accounted for nearly one-third (32 percent) of U.S. merchandise trade in the first quarter of 2010.

Regional Manufacturing Overviews:

Data Sources and Additional Information

International Trade (Export) Data:

  • FT-900, Census Bureau, U.S. Department of Commerce
  • TradeStats Express, Office of Trade and Industry Information, International Trade Administration, U.S. Department of Commerce
  • Exports from U.S. Metropolitan Areas, Office of Trade and Industry Information, International Trade Administration, U.S. Department of Commerce

Domestic Data:

Additional Resources of Interest:

  • State Reports – Contain export data on industries and major markets, percentages of export-related jobs, numbers of companies that export, and how foreign investment influences exports in each of the 50 states
  • Exporter Database – Tables profiling small and medium-sized enterprises by market, product, and U.S. state
  • Export-Related Jobs – Tables showing jobs supported by exports of manufactured goods by state and industry

Downloadable Charts and Figures

Notes:

1. Prior to 1997, industrial sectors were classified based on the Standard Industrial Classification (SIC) system. After 1997 the North American Industry Classification System (NAICS) was used.

2. For world region and trade organization definitions, see World Regions and Trade Organizations

Prepared by the Office of Trade and Industry Information, International Trade Administration

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Last Updated: 1/3/11 2:21 PM