Manufacturing is evolving, not dying

Scott Anderson isn't ready to write an obituary for U.S. manufacturers.

He points out that despite a long-running and substantial decline in employment, output from factories nationwide continues to climb.

Anderson, a senior economist at Wells Fargo, recently co-authored a study that outlines the changing face of U.S. manufacturing in which output, not the number of jobs, is the most appropriate way to measure the sector's health. The study also notes opportunities for growth as demand for U.S. factory technologies grows, particularly from emerging economies.

Anderson's job at Wells Fargo involves analyzing and forecasting international, national and regional economic trends. He also serves on the Minnesota Council of Economic Advisors, the American Bankers Association Economic Advisory Committee and the Federal Reserve's Survey of Professional Forecasters.

Anderson recently sat down to discuss the results and reaction to his study.

QWhat prompted you to do the study?

AIt seems that when anyone looks at the manufacturing sector they only look at it from one perspective -- jobs. I thought it was important to put a piece out there that talked about manufacturing in a more positive tone. The general belief out there is that manufacturing in the United States is dead or dying. We wanted to point out that it's just evolving.

AWe had a very open-minded approach. We were aware of the economic trends that have been developing in manufacturing since the 1980s -- the most obvious, of course, is the decline in manufacturing employment. We wanted to go beyond that and look at some of the production trends. We concluded that those actually show a much stronger picture of where manufacturing in this country stands.

QWere you surprised by any of the findings?

AWhen we were putting together the hard data analysis we ran some correlations between manufacturing production and employment that turned out to be quite telling. They showed us that before 1980 there was a strong positive correlation between manufacturing and jobs, but since then that correlation has basically been turned upside down. What that means is that we're producing more and more, yet we're actually losing jobs. The extent of that shift tells us there's a structural change that's gone on that deserves a deeper look.

QThe study points to key changes in manufacturing technologies, like robotics, that fueled this shift. Are there any more coming that you see that could continue or accelerate this trend?

AI don't know if we see anything brand-new, but I think these trends are well in place. Some of the pressures that are even building on manufacturers in emerging markets will create a spread of those technologies globally. Many of them, like robotics, computer- aided design and just-in-time inventory management, are widely used in the United States. But now countries like China that are seeing large increases in labor costs are going to follow our lead and implement them.

AThey will translate to jobs -- maybe not the same jobs that manufacturers have lost over the years, but manufacturers will be hiring new workers. What we found is that there is what manufacturers now refer to as a mismatch in skills. Manufacturers are saying they need highly skilled workers, people with advanced degrees in things like computer science and engineering as well as factory technicians and programmers. We can sell the equipment that's going to drive manufacturing in some of these emerging markets, and we can sell the know-how.

QHow much of our manufacturing output is specifically aimed at supporting new economies?

AWe looked at real exports of capital goods excluding autos. Those have increased from $12 billion in 1994 to $41 billion today. We're also noticing that a lot of those exports are going to emerging markets. We looked at exports to so-called BRIC economies -- that's Brazil, Russia, India and China -- and we found that those countries had a 4 percent share of our exports in 2000 and 12 percent today. That's a big shift in a very short period.

QWhat are we doing to educate and develop people so there isn't this mismatch?

AThere are a lot of studies out there that say we're not producing enough graduates in engineering and science. In the new economy, the new normal, we are shifting away from a consumer-driven, housing- and construction-driven economy toward a more productive, export-driven model.

AWe didn't get as much pushback as I expected. I think we did a good job of putting facts around our conclusions. A few people still might believe that the comparative advantages we've pointed out might not be enough to reverse the job loss in manufacturing. I think that is still an open question.