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The Brookings Institution and The Washington Post

Amid Fiscal Uncertainty, Manufacturing Is Up

Index #12: Last Five Quarters

Amid continuing mixed signals about the economy, one notable bright spot is the revival of U.S. manufacturing. The surprising strength of this once-battered sector holds promise for strengthening the U.S. economy overall, and despite continued troubles in Europe its new vigor may provide a boost to the global economy. In the latest "How We're Doing" Index, a team of scholars at the Brookings Institution has looked at the past five quarters of economic data to explore how growth in manufacturing is helping to support the nation's fragile economic recovery - with a particular emphasis on key metropolitan areas in a 21st century dominated by high-tech industries. Continue reading below chart »


Related Materials:
Past How We're Doing indexes »


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The latest broad economic reports have been somewhat disappointing. The economy grew at a 3 percent rate in the fourth quarter of 2011, but the advance estimate for the first quarter of 2012, 2.2 percent, was lower than expected. Monthly jobs growth averaged more than 250,000 positions from December through February, but the increase slowed to 154,000 jobs in March and the economy added only 115,000 positions in April. The unemployment rate is still inching downward, but it remains over 8 percent. Stronger payroll growth will be needed for continued improvement.

Because households contribute about two-thirds of U.S. economic demand, the fairly strong pace of consumer spending - it rose 2.9 percent in the first quarter - is encouraging. Unfortunately, disposable income is growing more slowly than consumption, a trend that must change if consumers are to keep spending. If U.S. employment gains expand, incomes are likely to rise and the fragile recovery will strengthen. But faltering employment growth could still trigger a self-reinforcing cycle of weakness. The chances are good that the U.S. economy is on a self-sustaining path of recovery, but it could be derailed, notably by a worsening crisis in Europe or conflict in the Middle East that pushes up oil prices.

Amid all this uncertainty, however, U.S. manufacturing is returning. The industry was knocked to its knees by the recession, but it should not be counted out. Some 16,000 manufacturing jobs were added in April - a weaker number than the previous two months but still an increase. Manufacturing employment, output and exports are headed in the right direction: In April, the number of U.S. manufacturing jobs was up 489,000 from the January 2010 low of 11.5 million. The Institute of Supply Management's manufacturing index has shown 33 consecutive months of expansion.

Overall, the U.S. economy remains strongest in advanced manufacturing sectors with high technological and skills requirements, such as aerospace, industrial and energy equipment, automobiles and medical devices. These types of manufacturing are prominent in several metropolitan areas that were hit hard by the recession but are recovering thanks to the sector's sharp rebound. Detroit benefited greatly from the revival of the auto industry after the federal rescue of General Motors and Chrysler in 2009, and has added jobs rapidly over the past year. Firms in the Cleveland and Charlotte areas have ramped up production to take advantage of the shale-gas boom sweeping much of the country. By contrast, manufacturing employment has grown more weakly or continued to slide in services or government-oriented economies such as Las Vegas and the Washington region. A new Brookings report on trends in the industry shows how manufacturing employment has retrenched toward more specialized areas of the Midwest and Northeast after three decades of steadily southward movement.

Manufacturing accounts for 12 percent of U.S. GDP and less than 10 percent of national employment; alone, it cannot power the economic recovery. Yet manufacturing accounts for 70 percent of private-sector research and development in the United States. High levels of investment in R&D, the potential to reduce the trade deficit and the ability to produce good jobs for middle-skilled workers merit the increased attention the sector is receiving after decades of policy drift. The administration, for example, has included a manufacturing initiative of roughly $1 billion in its fiscal 2013 budget, and notable plans have been proposed in Massachusetts and in Chicago.

Supporting basic science and technology development, providing advanced infrastructure and financing to help more manufacturers export to growing foreign markets such as East Asia and Latin America, and building a manufacturing workforce equipped with quality science, technology, engineering and math skills are essential for long-term economic recovery.

See also:
» State of Metropolitan America—portraying the demographic and social trends that shape our nation's metropolitan areas
» MetroMonitor—a barometer of the health of America’s 100 largest metropolitan economies

Sources:

GDP growth:
U.S. Bureau of Economic Analysis 

Unemployment rate:
U.S. Bureau of Labor Statistics

Percent unemployed for more than 26 weeks:
U.S. Bureau of Labor Statistics

Disposable personal income:
U.S. Bureau of Economic Analysis

Consumer inflation rate:
U.S. Bureau of Labor Statistics

Dow Jones Industrial Average:
Yahoo! Finance

Consumer sentiment:
Reuters/University of Michigan survey of consumers

Consumer spending:
U.S. Bureau of Economic Analysis

Months' supply of new homes:
U.S. Census Bureau

Interest rate on 30-year fixed mortgage:
Freddie Mac

Metro area employment rates:
U.S. Bureau of Labor Statistics

Metro area home price growth:
Case-Shiller Index

U.S. combat fatalities, Afghanistan:
icasualties.org

Civilian fatalities, Iraq:
Brookings Iraq Index

Approval ratings of president and Congress:
Gallup

Percent of Americans "satisfied with the way things are":
Gallup


 

SERIES: How We're Doing Index | # 12