US manufacturing performance and its affect on employment 2003 to 2012

We have had several blogs about manufacturing rebounding since the 2008 recession and its effect on unemployment.   This blog digs a little deeper into the trends.

Below is a chart showing GDP since 2003

US GDP

The recession started Q3 2008, but the previous two quarters averaged out to be negative GDP so all of 2008 was in decline.  In October of 2008 a series of events took place that shook the foundations of the financial industry, caused the largest drop in the stock market since the depression.  The housing market literally crashed and launched the US and much of the rest of the world into a deep recession that we still have not recovered from.    Unemployment soared to over 9% and the US is still not anywhere near employment levels experienced in 2003.  The manufacturing sector while hit hard was a bright spot in the post 2009 recovery.

In analyzing the employment numbers for manufacturing, one needs to keep in mind the forces that affect these numbers:

  • Demand is a key driver and certainly demand dropped due to the recession.
  • Outsourcing has been a factor in much of the manufacturing sector as jobs have been shipped overseas to Asia or south of the border to Mexico.   The outsourcing trend to China started in the mid 1990’s.
  • Productivity improvements have also affected employment levels.  After the crash of 2008 many businesses that cut back became leaner, opting to get more out of its existing workforce rather than hiring.  Manufacturing has had the largest productivity gains of any sector since 1980’s as it has adopted many productivity programs such as lean manufacturing, 6 sigma, JIT, Theory of Constraints and Quick Response Manufacturing gained popularity.
  • Business in general has been reluctant to aggressively hire, some may be due to skepticism about the economy, and others say that the upcoming health care laws are causing businesses to push back expansion plans.  But many corporations are still sitting on a pile of cash rather than expand.

The following charts look at employment levels by manufacturing segment from 2003 to 2012.

All the data is from the US Bureau of Labor statistics.  We have created 2 charts for ease of use, the first chart is manufacturing industries that employ less than 10,000,000 and the second chart is manufacturing segments that employ over 10,000,000.  The charts are normalized to compare as a percent to employment in 2003, so each line will start at 100%.

The first chart is the minor employers, not to say they have a minor impact on the economy, but each segment employs less than 10,000,000 workers.

The categories in this chart are Apparel, Electrical Equipment, Petroleum and Coal, Plastics and Rubber, Primary Metals, and Wood Products.   The following is the trend analysis by segment

Apparel:

The apparel manufacturing subsector consists of these industry groups:

  • Apparel Knitting Mills: NAICS 3151
  • Cut and Sew Apparel Manufacturing: NAICS 3152
  • Apparel Accessories and Other Apparel Manufacturing: NAICS 3159

The trend in the apparel industry was in a rapid decline before the 2008 recession as this industry has been one of the hardest hit by off shore sourcing.  Given the high labor content and relative lack of automation, it is doubtful that this segment will ever rebound.  The recession probably made little difference in the trend.

Electrical Equipment:

The segment consists of electrical equipment, appliance, and component manufacturing subsector consisting of these industry groups:

  • Electric Lighting Equipment Manufacturing: NAICS 3351
  • Household Appliance Manufacturing: NAICS 3352
  • Electrical Equipment Manufacturing: NAICS 3353
  • Other Electrical Equipment and Component Manufacturing: NAICS 3359

This segment was in a slight decline before the recession, probably because a significant amount of appliance manufacturing was being out sourced, The Electrical Lighting segment is still manufactured domestically but the housing crash deeply impacted this.  The segment is rebounding slightly but appears to be leveling off at about 80% of its 2003 levels.

Petroleum and Coal:

This segment is domestic petroleum and coal employment.  This segment was not scathed by the recession as employment trends are flat.  Since there are not a huge number of refineries being built and coal is being restricted by environmental regulations, it would seem reasonable to assume this area to be fairly stagnant.

Plastics and Rubber:

The plastics and rubber products manufacturing subsector consists of these industry groups:

  • Plastics Product Manufacturing: NAICS 3261
  • Rubber Product Manufacturing: NAICS 3262

This industry is also affected by off shoring as China has become a major center for injected molded plastic components.   One can see that this industry was in slight decline but was hit hard by the recession.   Currently it is gradually increasing, but still down to around 80% of what it was in 2003.

Primary Metals:

The primary metal manufacturing subsector consists of these industry groups:

  • Iron and Steel Mills and Ferroalloy Manufacturing: NAICS 3311
  • Steel Product Manufacturing from Purchased Steel: NAICS 3312
  • Alumina and Aluminum Production and Processing: NAICS 3313
  • Nonferrous Metal (except Aluminum) Production and Processing: NAICS 3314
  • Foundries: NAICS 3315

This segment was hit hard by the recession, but is recovering at a fairly decent rate and is currently employing about 85% of what it was in 2003.   A quick peak at 2013 data shows that this rebound has flattened out.   China did take a bite out of the steel industry as new equipment and lower wages made it more cost effective.  One wonders if the energy advantage the US has will help bring some of the steel industry back.

Wood Products:

The wood product manufacturing subsector consists of these industry groups:

  • Sawmills and Wood Preservation: NAICS 3211
  • Veneer, Plywood, and Engineered Wood Product Manufacturing: NAICS 3212
  • Other Wood Product Manufacturing: NAICS 3219

This segment was actually increasing during the housing boom up until the crash of 2008 as a significant amount of wood products goes into new housing construction. Employment in this industry was as severely effected as just about any other industry segment.  Wood products are currently at about 60% of its 2003 levels which pretty much mirrors the housing situation.

 

This next chart is for major employers that employ over 10,000,000 people in the US.

employment levels of manufacturing segments

The categories in this segment are Chemicals, Computer, Metal Products, Food, Machinery and Transportation.

Chemical:

The chemical manufacturing subsector consists of these industry groups:

  • Basic Chemical Manufacturing: NAICS 3251
  • Resin, Synthetic Rubber, and Artificial Synthetic Fibers and Filaments Manufacturing: NAICS 3252
  • Pesticide, Fertilizer, and Other Agricultural Chemical Manufacturing: NAICS 3253
  • Pharmaceutical and Medicine Manufacturing: NAICS 3254
  • Paint, Coating, and Adhesive Manufacturing: NAICS 3255
  • Soap, Cleaning Compound, and Toilet Preparation Manufacturing: NAICS 3256
  • Other Chemical Product and Preparation Manufacturing: NAICS 3259

The chemical sector was in decline before 2008, with the recession accelerating the decent a bit.  Currently the employment change has leveled off.  This segment has a broad range of products and one would be hard pressed to pick a reason why this segment was in decline as most of it is not labor intensive and shouldn’t be subject to off shoring.

 

Computer:

The computer and electronic product manufacturing subsector consists of these industry groups:

  • Computer and Peripheral Equipment Manufacturing: NAICS 3341
  • Communications Equipment Manufacturing: NAICS 3342
  • Audio and Video Equipment Manufacturing: NAICS 3343
  • Semiconductor and Other Electronic Component Manufacturing: NAICS 3344
  • Navigational, Measuring, Electro-medical, and Control Instruments Manufacturing: NAICS 3345
  • Manufacturing and Reproducing Magnetic and Optical Media: NAICS 3346

This segment was in rapid decline before 2008 because of a significant level of off shoring.  There has been a lot of talk about reshoring in this segment but the data does not show a great change.  Currently the computer segment is at about 81% of the levels achieved in 2003.

 

Metal Products:

The fabricated metal product manufacturing subsector consists of these industry groups:

  • Forging and Stamping: NAICS 3321
  • Cutlery and Hand tool Manufacturing: NAICS 3322
  • Architectural and Structural Metals Manufacturing: NAICS 3323
  • Boiler, Tank, and Shipping Container Manufacturing: NAICS 3324
  • Hardware Manufacturing: NAICS 3325
  • Spring and Wire Product Manufacturing: NAICS 3326
  • Machine Shops; Turned Product; and Screw, Nut, and Bolt Manufacturing: NAICS 3327
  • Coating, Engraving, Heat Treating, and Allied Activities: NAICS 3328
  • Other Fabricated Metal Product Manufacturing: NAICS 3329

This segment was rapidly increasing before 2008, and had a steep drop from the recession. It has been on a steep increase since 2010 and is at about 95% of its 2003 levels.  Very little of this industry was off shored and is related to some of the industrial segments that are currently thriving such as heavy equipment.     This is one segment that the US should continue to exploit.

Food:

The food manufacturing subsector consists of these industry groups:

  • Animal Food Manufacturing: NAICS 3111
  • Grain and Oilseed Milling: NAICS 3112
  • Sugar and Confectionery Product Manufacturing: NAICS 3113
  • Fruit and Vegetable Preserving and Specialty Food Manufacturing: NAICS 3114
  • Dairy Product Manufacturing: NAICS 3115
  • Animal Slaughtering and Processing: NAICS 3116
  • Seafood Product Preparation and Packaging: NAICS 3117
  • Bakeries and Tortilla Manufacturing: NAICS 3118
  • Other Food Manufacturing: NAICS 3119

The food industry employment has been modestly affected by the recession and is currently at around 96% of its 2003 employment levels.   Cost cutting measures taken in the 2009 time frame has probably kept employment levels from increasing.

 

Machinery:

The machinery manufacturing subsector consists of these industry groups:

  • Agriculture, Construction, and Mining Machinery Manufacturing: NAICS 3331
  • Industrial Machinery Manufacturing: NAICS 3332
  • Commercial and Service Industry Machinery Manufacturing: NAICS 3333
  • Ventilation, Heating, Air-Conditioning, and Commercial Refrigeration Equipment Manufacturing: NAICS 3334
  • Metalworking Machinery Manufacturing: NAICS 3335
  • Engine, Turbine, and Power Transmission Equipment Manufacturing: NAICS 3336
  • Other General Purpose Machinery Manufacturing: NAICS 3339

The graph shows how closely related machinery and metal products are trending.  This segment was a rapidly growing segment before 2008.  It took a hit from the recession but is rapidly increasing again.  It was at 95% of 2003 levels in 2012 and 2013 (not shown on graph) appears to be trending at closer to 97%.

Transportation:

The transportation equipment manufacturing subsector consists of these industry groups:

  • Motor Vehicle Manufacturing: NAICS 3361
  • Motor Vehicle Body and Trailer Manufacturing: NAICS 3362
  • Motor Vehicle Parts Manufacturing: NAICS 3363
  • Aerospace Product and Parts Manufacturing: NAICS 3364
  • Railroad Rolling Stock Manufacturing: NAICS 3365
  • Ship and Boat Building: NAICS 3366
  • Other Transportation Equipment Manufacturing: NAICS 3369

 

The transportation industry took the biggest hit of all segments from the recession and dropped to about 75% of its 2003 levels.  It has rebounded a bit in the last 2 years and is around 82 % of 2003 in 2012 and looks to be about 85% in 2013.  While the motor vehicle segment might be closer to 100% of 2003, the other segments are not flourishing since the recovery.

In summary, the following industries were minimally affected by the recession.

  • Food
  • Petroleum and Coal

The following industries were affected by the recession but are close to recovery (if you factor in productivity gains).

  • Primary Metals
  • Chemicals
  • Metal Products
  • Machinery

The following segments are still well below 2003 levels even with productivity gains.

  • Apparel
  • Plastics and Rubber
  • Wood Products
  • Computers
  • Transportation
  • Electrical Equipment

Of the industries that are still struggling, apparel and computers would seem to be destined to remain at low employment levels relative to 2003 numbers.    We are hopeful that transportation could continue its rebound.  Wood products and electrical equipment could come back strong as the housing market continues to rebound and the government makes major investment in infrastructure.