In December I wrote a piece pointing out that despite all the hype surrounding America’s supposed “Manufacturing Renaissance,” the data painted a starker picture. Hardly a renaissance, U.S. manufacturing seemed to be closer to a recession back then.
Six months later, the story hasn’t changed much, despite continued hype that “Made in the USA” is staging a big comeback. The anecdotes are nice, but the broader data just don’t bear out a big comeback. Manufacturing employment over the last 12 months has essentially been flat, stuck at around 11.9 million workers since April 2012. The industry has added around 500,000 jobs since the recession ended, but that’s a drop in the bucket compared to the 1.8 million manufacturing jobs lost from November 2007 to the end of 2010.
It’s not just employment that’s been sagging. Industrial production shrank by 0.5 percent in April, according to new data from the Federal Reserve. Overall, the country is using about 77 percent of its total industrial capacity, nearly 3 percentage points below the 40 year average.
The latest bad news comes from the Philadelphia Fed’s report on regional manufacturing activity, which plummeted to a minus 5.2 reading this month. The average estimate of economists surveyed by Bloomberg called for a gain of 2. Anything below zero indicates contraction. Industrial activity has been essentially flat for the Philly region over last seven months. Though it bears noting that the Philly reading is notoriously choppy, with a standard deviation around 11 points since 2010, a miss that large is still bad news. Things aren’t much better in New York, where the latest Empire State Manufacturing Survey registered a negative 1.4.
This isn’t just a Northeast trend: manufacturing activity is stalling in Texas, according to recent data from the Dallas Fed, and in parts of the Midwest, according to an April report (PDF) from the Kansas City Fed. The Mid-Atlantic notched a big decline in manufacturing activity between March and April. The one bright spot seems to be the southeast, where industrial production continues to expand, though at a slower pace.
U.S. manufacturers are beset by suddenly cheaper goods from overseas. U.S. import prices fell by half a percent in April, according to new data from the BLS. High-end products from Japan have gotten particularly cheap thanks to the country’s aggressive monetary easing. Since January, the price of Japanese imports has fallen by 1.3 percent. Low-end stuff from China is also getting cheaper, despite all the attention paid to higher wages there. Over the last 12 months, the price of Chinese imports has fallen by 0.9 percent. Things get worse when you add in Europe’s economic malaise, which is keeping a lid on demand for high-end U.S. manufactured goods.
Maybe this is just a soft patch; there are signs that manufacturing activity will pick up through the later half of the year. According to Fed data, commercial and industrial loans are up more than 10 percent compared to 12 months ago, a sign that industrial companies are investing in anticipation for future growth; though maybe they’re just buying more matchines to replace humans. Still, after helping lead the economy out of recession in 2009 and 2010, manufacturing’s contribution to GDP has all but vanished.
“It’s flattened out completely and is not contributing to GDP growth right now,” says Jacob Oubina, senior economist at RBC Capital Markets (RY). “Any talk of a broad manufacturing renaissance is completely misguided.”
