Oregon Office of Economic Analysis

Besides the references in President Obama’s State of the Union speech earlier this week, there has been much discussion (and consternation) of the so-called manufacturing renaissance in recent years. It’s hard to put a formal definition of what people mean when they say manufacturing renaissance, but in general it certainly means growth of manufacturing jobs in the U.S. Some of the reasons economists give for such growth include increased U.S. competitiveness from low energy costs (natural gas in particular due to fracking) and relatively lower wages (U.S. manufacturing wages aren’t growing much while those in the developing world are increasing fast), rules/regulations increasing abroad, intellectual property rights concerns, publicity for U.S. made products, a relatively weaker U.S. dollar, to name a few. So how is the so-called renaissance going?

First, manufacturing jobs are increasing in recent years, nearly 8 million 800,000 from the depths of the Great Recession through today. Of this, there is no question. However, how do you place these gains in context of the overall economy? One common way is to show manufacturing jobs as a share of all jobs.This is the graph or measure many use to dismiss the concept of a manufacturing renaissance or proof that is isn’t happening. However, while the share of jobs isn’t increasing, the movement sideways is a historical outlier. The fact that manufacturing jobs are growing just as fast as the overall number of jobs is fundamentally different than the past 60 years in this country. So does that mean the renaissance is real? Maybe. In a Twitter exchange yesterday with Josh Zumbrun of the Wall Street Journal, I shared a few of the ways I try to characterize the manufacturing rebound.

The first graph shows the share of lost jobs regained during the subsequent expansion. In this context, our recovery so far doesn’t look so impressive. However it must be pointed out that U.S. manufacturing jobs peaked in 1979 and have largely been flat to down since. The current gains are considerably better than the mid-2000s recovery. While that shows the share regained, it’s also important to look at how many jobs were lost. The next graph shows both the lost jobs and subsequently how many were regained over the expansion.

Finally, as our office has pointed out previously, manufacturing in Oregon typically outperforms the average state. Manufacturing jobs today are in a very similar position coming out of a deep recession as they were back in the 1980s. More importantly, Oregon’s share of all U.S. manufacturing jobs is increasing over time. Much of this has to do with the fact that Oregon manufacturing is not tied as much to what we call old-line manufacturing which has been hit harder in recent decades. This would primarily be auto makers, steel makers, textiles and the like. Of course wood products and paper mills would be here as well, which have not fared well over the past 30 years. The reason Oregon outperforms is that a large amount of our manufacturing can be considered new-line, such as our semiconductors and aerospace firms. Plus food processing has done extremely well over the past decade.

All told, the manufacturing sector certainly is recovering, however not significantly out of line from the previous 4 business cycles. Even with the impacts of globalization and technological change which impact nearly all industries but manufacturing the most, expectations were and are that U.S. manufacturers would add back some of their lost jobs. It is very unlikely that all of the lost manufacturing jobs will be regained, just as they have not for 35 years. Even in this realm of ever increasing output and higher productivity (which results in fewer workers needed to produce the same amount of goods) it is beginning to look like the mid-2000s recovery is the outlier here where essentially none of the lost manufacturing jobs come back. Moving forward our office expects many of these trends and pressures to continue. Production jobs will not keep pace with output, but employment will continue to grow. We’re on the economic upswing today and progress will continue to be made. At least until the next recession, when this cycle begins anew.