Jones Lang LaSalle
February 17, 2006 Volume 7, Number 6
Manufacturers' Dilemma: Fewer Workers, More Space and Greater Productivity Laura Stone Mortimer, Managing Economist
lstone@tortowheatonresearch.com
The U.S. manufacturing sector has been shedding jobs over the past couple of decades. This is familiar to us. While employment has been declining, productivity gains have been evident, particularly since the mid-1990s. As such, the demand for manufacturing space has only increased moderately--approximately 10 percent since 1989. With manufacturing employment shrinking by 25 percent in about 15 years, what is driving the moderate increase in manufacturing space and the even greater increase in industrial production?
Manufacturing Employment Has Declined While Industrial Production Has Grown Substantially
Source: Torto Wheaton Research, Federal Reserve.
Manufacturing employment was once the engine of growth for the U.S. economy. While its share of the overall job base has declined from a high of 23.0 percent in 1970 to 8.8 percent currently, it is not on its way to complete extinction. Moreover, the decline in manufacturing employment is not necessarily bad news for the aggregate economy, being a sign of health and wealth. Other developed countries are also experiencing the shrinking manufacturing sector phenomenon. Britain is close behind the United States, followed by France, Japan and Germany.
How can this be healthy? The evidence of this is in productivity gains with manufacturing output, growing on average by four percent since 1991. This is despite the sharp rise in Chinese exports and the popular belief that the manufacturing base is in decline. To the contrary, America still remains the world's biggest manufacturer and produces twice as much in value as China.
Growth in manufacturing output and productivity shows that the decline in jobs is the result of replacing workers with new technology, boosting productivity. This has shifted production from labor-intensive products such as textiles to higher value, higher technology industries such as pharmaceuticals. Lower skilled workers are now primarily sourced offshore. Therefore, the decline in jobs is not the result of a mass substitution of Chinese goods for local ones, but a shift in what and how goods are being manufactured.
Ratio Of Manufacturing Output Per Worker Has Soared!
Source: Torto Wheaton Research, Federal Reserve.
Using national data on productivity we can further exemplify this point. Productivity, or output per worker, has clearly risen over the past decade. While we know that manufacturing employment is shrinking, the ratio of workers per square foot has fallen. Therefore, the ratio of output per worker has soared!
All of these signs are good for the economy. Faster productivity growth results in higher average incomes. The unemployment rate is low and falling, suggesting that workers who have been laid off have found employment. Consumer spending has remained strong, with consumers benefiting from lower cost goods being imported from China. Many of the displaced manufacturing workers are likely finding work in the service sector.
Go to http://www.blogger.com/www.tortowheatonresearch.com to register for a free subscription to About Real Estate.
© 2006 Torto Wheaton Research
February 17, 2006 Volume 7, Number 6
Manufacturers' Dilemma: Fewer Workers, More Space and Greater Productivity Laura Stone Mortimer, Managing Economist
lstone@tortowheatonresearch.com
The U.S. manufacturing sector has been shedding jobs over the past couple of decades. This is familiar to us. While employment has been declining, productivity gains have been evident, particularly since the mid-1990s. As such, the demand for manufacturing space has only increased moderately--approximately 10 percent since 1989. With manufacturing employment shrinking by 25 percent in about 15 years, what is driving the moderate increase in manufacturing space and the even greater increase in industrial production?
Manufacturing Employment Has Declined While Industrial Production Has Grown Substantially
Source: Torto Wheaton Research, Federal Reserve.
Manufacturing employment was once the engine of growth for the U.S. economy. While its share of the overall job base has declined from a high of 23.0 percent in 1970 to 8.8 percent currently, it is not on its way to complete extinction. Moreover, the decline in manufacturing employment is not necessarily bad news for the aggregate economy, being a sign of health and wealth. Other developed countries are also experiencing the shrinking manufacturing sector phenomenon. Britain is close behind the United States, followed by France, Japan and Germany.
How can this be healthy? The evidence of this is in productivity gains with manufacturing output, growing on average by four percent since 1991. This is despite the sharp rise in Chinese exports and the popular belief that the manufacturing base is in decline. To the contrary, America still remains the world's biggest manufacturer and produces twice as much in value as China.
Growth in manufacturing output and productivity shows that the decline in jobs is the result of replacing workers with new technology, boosting productivity. This has shifted production from labor-intensive products such as textiles to higher value, higher technology industries such as pharmaceuticals. Lower skilled workers are now primarily sourced offshore. Therefore, the decline in jobs is not the result of a mass substitution of Chinese goods for local ones, but a shift in what and how goods are being manufactured.
Ratio Of Manufacturing Output Per Worker Has Soared!
Source: Torto Wheaton Research, Federal Reserve.
Using national data on productivity we can further exemplify this point. Productivity, or output per worker, has clearly risen over the past decade. While we know that manufacturing employment is shrinking, the ratio of workers per square foot has fallen. Therefore, the ratio of output per worker has soared!
All of these signs are good for the economy. Faster productivity growth results in higher average incomes. The unemployment rate is low and falling, suggesting that workers who have been laid off have found employment. Consumer spending has remained strong, with consumers benefiting from lower cost goods being imported from China. Many of the displaced manufacturing workers are likely finding work in the service sector.
Go to http://www.blogger.com/www.tortowheatonresearch.com to register for a free subscription to About Real Estate.
© 2006 Torto Wheaton Research
posted by Jones Lang LaSalle NJ News Blog at 2:32 PM
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