American Manufacturing Jobs Not Going to Return to Previous Levels….and That’s OK
There are many out there who judge the renaissance, the come back, the revival (or whatever you want to call it) as a return of manufacturing jobs. Those pundits who say that we are not gaining a stronger manufacturing base, which in turn helps the economy recover, in my opinion, are focusing on the wrong thing. In an earlier post, I said that manufacturing for the most part has remained strong (with less of a dip in this recession in output than in previous recessions) and no, we aren't going to see the jobs level that we have seen in the past. I have also said that there is not necessarily a "revival" in manufacturing, but more a transformation of sorts. This is evident in that continued relatively strong output numbers.
The Measurement of American Manufacturing Jobs
Many also state that we've lost jobs because of offshoring. And although we have lost jobs due to factories shut down here and sent to China, those jobs eventually would have been phased out due to the increase in automation in manufacturing anyway. But, are we even measuring the total of American manufacturing jobs correctly anyway? Some recent articles say that we need to start changing that definition as we see this transformation before our very own eyes. A recent article by the Economic Policy Institute entitled "What Is Manufacturing and Where Does It Happen?", states that the Office of Management and Budget (OMB) has issued a proposal for changes to the North American Industry Classification System (NAICS) that would take effect in a 2017 revision. Here is the requested change, in brief, as written in the article:
NAICS 2017 would implement a previous but suspended plan (NAICS 2012) to classify factoryless goods producers (FGPs) such as Apple and Nike, most of which are now in wholesaling or management of companies (both service industries), into manufacturing. The proposal would also move trade by manufacturing service providers (MSPs), such as China’s Foxconn (which builds Apple products) into services. MSP establishments in the U.S. have been and will remain in manufacturing, but the jobs and output that are traded would be moved into services.
But the EPI states what I agree with: that this change would undermine and mask the real underlying issues of American Manufacturing Jobs and the look at the industry's true organic growth. If you mask data, such as output, by changing the definition to include wholesalers, then how can you show true organic growth and then make accurate decisions to move US manufacturing forward? But again, even with this definition change, are the number of American Manufacturing Jobs the real health metric of the industry?
8 Million American Manufacturing Jobs Lost, Yet Output and Future Outlook Still High Due to Energy Independence
Tell me if you've heard this story before -- American manufacturing has been dying for years. The U.S. has lost some 8 million manufacturing jobs since 1980:
Yes, we've lost 8 Million manufacturing jobs, but the reality is that many of those jobs don't exist anymore, having been lost to automation. And the ones that have been lost to offshoring, especially in sectors like textiles and consumer electronics, are unlikely to ever return.
While the American manufacturing jobs picture has been bleak for years, American manufacturing itself has never been bigger. Last year, U.S. manufacturers produced more dollars' worth of goods than ever before, and it's expected that 2014's sales will exceed 2013's:
It's unlikely that domestic manufacturing will ever again employ the percentages of Americans that it has in past decades, but there's a game-changing catalyst leading to even further growth in American manufacturing output. The news gets even better: It will likely be a driver of job creation, as well (Reagan did coin this idea as "Trickle Down Economics" after all) thanks to the multiplier effect and a the materialization of a "Secret American Weapon"
During the past half decade, domestic natural gas production has rebounded strongly. Hydraulic fracturing and horizontal drilling have allowed gas and oil producers to unlock the resources trapped, and previously considered impossible to extract, deep inside shale rock deposits all around the country.
Fracking has turned the United States into the "Saudi Arabia of natural gas," with more proven reserves of natural gas than the Saudis have oil. What does this mean for jobs in America? For a number of industries, inexpensive natural gas offers a significant competitive advantage that even the cheapest foreign labor can't compete with. That could lead to more American manufacturing jobs in and supporting this boom industry.
According to the American Chemistry Council, more than $90 billion in new projects have been announced, which will have major economic impact. These projects are expected to lead to the U.S. chemical industry delivering net exports of more than $30 billion by 2018. For context, in 2005, America was a net importer, to the tune of $9 billion. That's a nearly $40 billion swing in the trade balance, almost completely tied to domestic natural gas resources.
The upside of all of this new activity is, of course, American Manufacturing jobs, and the trickle-down effect of adding $40 billion to the domestic economy. It's estimated that a 25% increase in ethane supplies could create 400,000 American manufacturing jobs alone. The question, of course, is sustainability. While it's unlikely that U.S. manufacturing will ever return to prior levels, most estimates put domestic natural gas supplies at 100 years, based on current production. In short, that leaves plenty of room to expand output, and still see a decades-long "revival".