There are two things at work here. One is that increased automation is increasing output with fewer workers which covers up much of the actual shrinkage in the sector. That's the march of progress. The other is that much of what passes for manufacturing today is really assembly work where the complex value added components of a product that require extensive R&D and engineering are manufactured overseas only to be slapped together here.
So with the much looser standards of what constitutes manufacturing (witness Bush's former economic advisor’s attempts to classify making hamburgers as "manufacturing") the aggregate economic numbers don't look that bad when what is actually happening in America's manufacturing sector is nothing short of a disaster.
Software development, for example, is often overlooked as a manufacturing industry because of an inherent assumption that something can't be "manufactured" if it is the product of human minds instead of machinery.