Goods vs Services—The Decline of US Manufacturing Jobs

With a steady decline in US manufacturing jobs, one might ask “Where have all of the jobs gone?” Not to China or Mexico. Guest blogger Steven McDonald, CVA, GAI’s Community Service Group Chief Economist, discusses several factors at work that contribute to a shrinking U.S. manufacturing sector.

As one of the richest and most developed countries in the world, the US has progressed along a typical path of industrialization. Long and steady, this path began with agriculture shifting to manufacturing, followed by a move to economic dominance in services. According to the St. Louis Federal Reserve Bank, US manufacturing jobs accounted for one-third of total employment in 1945. Today, US manufacturing jobs account for only one in 12. Total goods‑producing jobs declined from 38 percent in 1945 to just 14 percent of total employment in 2017.

For more than 70 years, every presidential administration—Republican and Democrat—has ended its term with a smaller manufacturing sector than when they started. Additionally, in most recent times, each preceding administration seems to make this reality an issue of trade. However, our shift towards producing services over goods began well before China’s rise as a manufacturing economy, with total US manufacturing jobs peaking nearly two decades before the North American Free Trade Agreement.

US Manufacturing Employment
Every presidential administration since Harry Truman’s has endured a decline in manufacturing’s share of total jobs.

This begs the question—Do we import more goods than we export? Like virtually any wealthy, advanced industrial country, yes we do. However, the larger culprits include the following:

  • A Shift in Consumer Demand Away from Manufactured Goods
    The share of consumer expenditures devoted to manufactured goods has simply declined in the US. In 1945, personal expenditures on durable goods accounted for 58 percent of total spending. Today, consumers spend less than 28 percent of their expenditures on durable goods.
  • Manufacturing Productivity
    In advanced stages of industrialization, manufacturers continually invest more capital as manufacturing techniques advance at an exponential pace. Strong growth in productivity—the ability to make more with less—means less employment is required to meet a shrinking consumer demand for durable goods.
  • Changes in the Structure of Manufacturing Employment
    Finally, goods-producing employers shifted to meeting fluctuations in demand by adding temporary workers, particularly for support functions (i.e., security, janitorial, payroll-processing services, etc.) These structural shifts have virtually no effect on manufacturing output, but they do reduce the measured level of employment in the manufacturing sector.

So, where is our manufacturing future headed?

A 2014 study at the Brookings Institute concluded that “the key to expanding US exports and reaching manufacturing’s employment potential is to have companies, domestic and foreign, judge it is profitable to manufacture [in the US].” Policies aimed at strengthening the domestic manufacturing sector can help improve that outlook. However, a move towards protectionism could erase 70 years of economic progress.

For more information on economic analysis and progression, contact GAI’s Community Solutions Group Chief Economist Steven McDonald, CVA at 407.423.8398.

GAI’s Community Solutions Group is a diverse and growing team of experienced planners, designers, economists and public policy experts. The Group integrates landscape architecture, urban planning, economics, and finance in an idea-driven strategic consulting practice.

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