U.S. manufacturing base sets records, not shrinking anymore

Recently my center, along with Conexus Indiana, released a couple of studies on manufacturing and logistics. One was our annual report card, and the other was our attempt to debunk some pervasive myths about manufacturing in the U.S.

Indiana continued to do well on the report card, earning a top spot. We improved in several key areas, including human capital and unfunded liabilities, and have maintained a strong fiscal environment.

The only unpleasant news was an increase in health care premiums relative to other states. Still, I am amazed at how prevalent untruths are about the current state and future of manufacturing and logistics. Let me set straight the record.

There are many otherwise smart and educated folks in the country who think that our manufacturing base is shrinking. It simply is not. On an inflation-adjusted basis, last year was the record year of manufacturing production in the United States. Absent some unpredicted collapse of the world economy, 2015 will be the new record year.

The data are stunningly simple to obtain from the Department of Commerce’s website. Sure, there are ups and downs with recessions, but the trend is obvious. There is really no reason why a literate person with a computer and Internet connection should suppose otherwise.

A second big myth is that we are losing huge numbers of jobs to foreign trade. Here is where there is plenty of well-deserved confusion because the truth is inconvenient to many interest groups who do much to sow confusion. A bit of honest analysis tells us something different, and it is best to look at the decade from 2000 to 2010 to understand it.

The first decade of this century saw the largest declines of manufacturing employment in history. But a bit of algebra and data allow us to build an equation that can solve the job-loss riddle.

As it turns out, 87 percent of job losses in the past decade were due to productivity gains. We are simply very good and getting better at manufacturing, and trade deficits accounted for no more than 0.08 percent of annual job losses per year over the past decade.

The final myth is that new manufacturing jobs pay less. The average new hire in manufacturing in Indiana makes more than $20 an hour. This is good money even though it is less than most retiring workers made. The simple truth is that millennial workers are replacing baby boomers, and that masks the fact that new manufacturing jobs are high-paying opportunities.

Manufacturing production is growing; and when we account for retirements and turnover, Indiana alone will have 125,000 manufacturing job openings per year over the next decade. By way of comparison, we will only have 70,000 high school graduates per year.

Sure, we have work to do to boost manufacturing. Our corporate taxes are too high, and some countries continue to interfere with free trade through currency manipulation. But the real problem might be the need to better prepare folks to take these jobs.

Michael Hicks is the director of the Center for Business and Economic Research and an associate professor of economics in the Miller College of Business at Ball State University. Send comments to awoods@tribtown.com.