Manufacturing myths

The Washington Times ^ | August 31, 2003 | Alan Reynolds

[expat_panama]

Back in 1995, right in the middle of a nine-year economic boom, Louis Uchitelle co-authored an absurdly downbeat series of New York Times articles on "The Downsizing of America." That series was full of opinion polls, as though popular illusions could substitute for facts. More recently, there has been hope that scandals at the New York Times might have given new editors at least a casual interest in factual accuracy. Apparently not. A couple of weeks ago, the unrepentant Mr. Uchitelle wrote yet another weirdly apocalyptic piece claiming, that "manufacturing is slowly disappearing in the United States."

[expat_panama]

While Mr. Uchitelle first began whining about manufacturing being "downsized," it actually grew by 5.3 percent a year from 1992 through 2000.

So much whining and so few facts- some how the US survived that 'giant sucking sound'.

[NoControllingLegalAuthority]

Ok, U.S. manufacturing is under no threat? Go out and see how many things in the stores or home improvement warehouses you can buy that have "Made in the USA" written on them. This is one way an American can personally separate fact from propaganda.

[Libertarianize the GOP]

http://www.freerepublic.com/perl/bump-list

[Gatún(CraigIsaMangoTreeLawyer)]

Hey Panama,

Welcome home!!!

Have you returned or are you new here in Panama?

Thank you for the post.

My very best wishes,

Gatun

[A. Pole]

So much whining and so few facts- some how the US survived that 'giant sucking sound'.

Good point. Argentina is also surviving despite all this whining.

[the gillman@blacklagoon.com]

A cancer patient lying in his hospital bed half dismembered, with tubes poking out all over has still survived.
For now.

[edsheppa]

Some recent frauds:

• The End of History
• The End of the Business Cycle
• The End of US Manufacturing

[Iscool]

Uh, you shouldn't believe everything you read...My area is becoming a ghost town...There is no manufacturing construction going on...Most all industrial construction has stopped...No new power plants...

For the most part, roads are being patched, not repaired...

There is however a considerable amount of commercial construction going on...People are using their credit cards...

Isn't it interesting how people can manipulate numbers to make them mean whatever they want them to mean??? You sound like a politician...

[1rudeboy]

Part of the danger of using anecdotal evidence is that one untimately believes what he sees is happening everywhere else. For that reason, I don't run-around saying that I can see for 40+ story highrises being built through my window, and roughly 10-12 if I walk around the block.

[1rudeboy]

If you print this version it'll be easier on your eyes.

[Mind-numbed Robot]

..... imports seem bigger because they are concentrated in clothing and consumer goods, which are far more visible than more costly industrial supplies and equipment. Apparel accounts for only about 6 percent of U.S. imports, industrial supplies and equipment for 55 percent. Major industrial countries supply almost 48 percent of U.S. imports of manufactured goods, while all newly industrialized Asian countries account for 9.3 percent.

Doesn't that address your point?

[Mind-numbed Robot]

Isn't it interesting how people can manipulate numbers to make them mean whatever they want them to mean??? You sound like a politician...

Is there something in particular you take issue with? I agree that numbers can easily be manipulated but what error, either in facts or in reasoning, do you see in this article?

[Southack]

fyi

[Southack]

"Some recent frauds:

The End of History
The End of the Business Cycle
The End of US Manufacturing"

Others:

Global Cooling
Global Warming
Scarcity of Petroleum
Endangered Species (as if we can't clone them back)

DDT Fear-mongering
Nuclear Power fear-mongering
Global Over-Poulation Nonsense
"Diversity is Our Strength"

[Southack]

Ha! Make that: Global Over-Population Nonsense!

[Grampa Dave]

Our Costco, Walmart and Target must have different suppliers than yours.

We buy at least a $ thousand $'s per month with mainly American manufacturers. Never any ChiCom products, any French Products and lately no German or Canadian Products.

There is foreign stuff on the counters and shelves, but we buy American if possible. That has not been a problem in most situations.

[Last Dakotan]

Sigh, how long will I have to read posts from people who have no idea of what they are talking about?
Tell you what, you are qualified to talk about the downsizing of American industry if you have had a trusted Purchasing Agent lean forward on his desk and tell you that you must take 30% less for what you do as a livelihood next year or he has to take your work overseas.
No matter what we think of them, the Japanese and the Chinese aren't idiots. They are willing to spend great sums of money undervaluing their currencies to burn out the American competition, knowing that they won't be back.
Furthermore, if domestic companies aren't producting for the US consumer market, how long are the companies producing the industrial goods these factories in turn need going to be viable? The domestic machine tool industry collapsed because of this very reason.
I agree that our greatest enemy is our our own government. Some days I just want to be treated like a farmer...

[ggekko]

US manufaturing is troubled but not becuase of free trade agreements. The real culptrits are, in order of importance,:

---An out of control lawsuit culture that
has bankrupted most recently a series of
companies involved, in some cases tangentially,
with asbestos manufacturing,

---Incomprehnsible OSHA, ERISA, and
Antitrust regulations that seem to change from
month to month,

---The worst Coporate tax system in the world which
has the effect of penalizing capital investment.

Much of the foreign direct investment (FDI) is in reality flight capital caused by the very negative US business climate.

Populist demgogues in Congress have convinced many brain-dead Americans that any pro-business legislation is evil. Until the problems listed above are forcefully addressed we will continue to see a net outflow of investment funds from this country.

[metesky]

I think you hit it. Everyone has tunnel vision and can really only relate to what they experience and see in their areas. Everything else is anecdotal to a large degree.

Central Maine has been losing manufacturing jobs recently, but only in what were dying industries anyway.

Paper and shoes, both pretty much uncompetitive in this neck of the woods.

On the other hand, construction of all sorts, commercial and residential, is really strong.

[Starwind]

    It helps to keep in mind a few simple points. First, manufacturing is extremely cyclical. The manufacturing component of the U.S. industrial production index fell by 5.5 percent a year in 1974-75, then rose by 6.6 percent a year for the next four years. In 1980-82, manufacturing fell by 3.1 percent annually for three years, then rose by 4.8 percent a year for six years. Manufacturing then dropped 2 percent in 1991. What happened next?

    While Mr. Uchitelle first began whining about manufacturing being "downsized," it actually grew by 5.3 percent a year from 1992 through 2000. Manufacturing then fell 4.1 percent in 2001 (the bottom of his "trend") but rose at a 6.1 percent pace during the first three quarters of last year. What has been unusual about U.S. manufacturing was not the inevitable recession in 2001 but the unusually long and strong expansion for the preceding eight years. About half of the unusually strong gains came from the manufacture of high-tech equipment, which is a lot more valuable than T-shirts.

Unfortunately Mr. Reynolds does not cite where he gets his index data so it is not possible to demonstrate what is wrong with it, other than it does not reflect what the Dept of Commerce BEA data shows, which is that manufacturing has declined some 27% by dollar volume over the last 15 years. We all know many companies have moved offshore and taken jobs with them. While Manufacturing has improved slightly over the last 2 months, clearly it by no means makes up for its losses over the last 15 years.

Mr. Reynolds argues "About half of the unusually strong gains came from the manufacture of high-tech equipment, which is a lot more valuable than T-shirts." Well, I've shown below the electronics equipment contribution to manufacturing, and while it is a contribution, it by no means makes up half, nor has manufacturing had strong gains.

Here is the Dept of Commerce BEA data from which most analysts, companies and economists get their data. Unlike Mr. Reynolds who has not 'shown hs work', I've provided links and tables so you can verify for yourself.

From GDP by Industry in Current Dollars As a Percentage of GDP: at http://www.bea.doc.gov/bea/dn2/gposhr.htm:

I have extracted the manufacturing share of GDP for 1987 through 2001, along with the electronic equipment portion of manufacturing:

Line                                                      1987     1988     1989     1990     1991     1992     1993 
 1        Gross domestic product......................... 100.0    100.0    100.0    100.0    100.0    100.0    100.0                                                                                                                                                                                                                                                    
12      Manufacturing....................................  18.7     19.2     18.5     17.9     17.4     17.1     17.0 
20          Electronic and other electric equipment......   1.8      1.9      1.9      1.8      1.9      1.7      1.8  
 
 
Line                                                      1994     1995     1996     1997     1998     1999     2000     2001
 1        Gross domestic product......................... 100.0    100.0    100.0    100.0    100.0    100.0    100.0    100.0                                                                                                          
12      Manufacturing....................................  17.3     17.4     16.8     16.6     16.3     16.0     15.5     14.1
20          Electronic and other electric equipment......   2.0      2.0      2.0      2.0      1.8      1.7      1.6      1.4

For all of manufacturing, for 1988 through 2001 there has been a decline of 27% (I trust no one will argue 2002 data, when published, will make up for those losses).

26.56 percent = 19.2 - 14.1 / 19.2 x 100

Sometimes the BEA's Real GDP chained data is used in similar calculations. These calculations are invalid because of how chained data is produced and tabulated. Here is the BEA's warnining note on such calculations.

Note.--Chained (1996) dollar series are calculated as the product of the chain-type quantity index and the 1996 current-dollar value of the corresponding series, divided by 100. Because the formula for the chain-type quantity indexes uses weights of more than one period, the corresponding chained-dollar estimates are usually not additive.

That note comes from the BEA's Real Gross Domestic Product by Industry in Chained (1996) Dollars in which the aggregates in a chained dollar series are not additive, which means that the components don't add up to the total GDP, which means that each component is not represented in its proper proportion or share of the total GDP, which ultimately means one can not compute manufacturing's percent of 2001 GDP as:

16.2 ~ 16.17 = 1,490.3 (from col 2001 line 12) / 9,214.5 (from col 2001 line 1)

That math, normally valid, is invalid with chained data. That's why the BEA provides tables with GDP share computed such as Gross Domestic Product by Industry in Current Dollars As a Percentage of Gross Domestic Product

Manufacturing's decline is about 27% from 1988 to 2001.

Mr. Reynolds also argues "Efforts to stir up "public agitation" about China are based on lies. China accounts for only 18 percent of our imports of merchandise. Chinese imports seem bigger because they are concentrated in clothing and consumer goods, which are far more visible than more costly industrial supplies and equipment." Again, he cites no tables or reports on which he bases his conclusion. Below are the Trade Departments data on our top 10 trading partners and the 3 largets by volume Canada, Mexico, and China, and the three largest by deficit, China, Canada, and Mexico.

For the 1st half or 2003 thru June, our 1st largest deficit is $53B with China, averaging $10B/month, on the 3rd largest volume of $79B: For June alone, see the U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES - June 2003

Deficits were recorded, in billions of dollars, with China $10.0 ($9.9), Western Europe $8.0 ($8.3), Japan
$5.4 ($4.5), OPEC $4.0 ($4.4), Canada $3.8 ($3.8), Mexico $3.4 ($3.4), Taiwan $1.1
($1.4), Korea $1.0 ($0.9), Brazil $0.6 ($0.5), and Argentina $0.1 ($0.1).

Further, our total trade balance deficit with China is the largest (see U.S. Trade Balances by Country and Go to 'C' fo4r China and Canada data and 'M' for Mexico data:

Trade with China : 2003

NOTE: All figures are in millions of U.S. dollars

MONTH	EXPORTS	IMPORTS	BALANCE
January	1,988.30	11,409.60	-9,421.30
February	2,053.60	9,633.00	-7,579.40
March	2,424.50	10,094.10	-7,669.60
April	2,089.50	11,540.90	-9,451.40
May	2,013.10	11,875.00	-9,861.90
June	2,122.10	12,111.60	-9,989.50
TOTAL	12,691.10	66,664.30	-53,973.20

Trade with Canada : 2003

NOTE: All figures are in millions of U.S. dollars

MONTH	EXPORTS	IMPORTS	BALANCE
January	12,859.00	17,809.00	-4,950.00
February	13,248.00	17,593.00	-4,345.00
March	15,114.00	20,262.00	-5,148.00
April	14,633.00	18,443.00	-3,810.00
May	15,401.00	19,248.00	-3,847.00
June	14,795.00	18,585.00	-3,790.00
TOTAL	86,050.00	111,940.00	-25,890.00

Trade with Mexico : 2003

NOTE: All figures are in millions of U.S. dollars

MONTH	EXPORTS	IMPORTS	BALANCE
January	7,825.70	10,842.70	-3,017.00
February	7,065.50	10,965.80	-3,900.30
March	7,810.40	11,734.60	-3,924.20
April	7,849.30	11,193.50	-3,344.20
May	8,078.20	11,500.40	-3,422.20
June	7,959.30	11,382.70	-3,423.40
TOTAL	46,588.50	67,619.60	-21,031.10

Further, our top 10 trading partnbers can be found at Top Ten Countries with which the U.S. Trades - June 2003

and by checking the trade balance by country, our June 2003 deficit with Canada is $26B, and with Mexico is $21B, but with China ouir deficit is largest at $53B, even though the total trade is 3rd. i.e. We trade more with Canada and Mexico, but China buys far less from us than we import from them, resulting in our largest trade deficit being with China.

Top Ten Countries with which the U.S. Trades

For the month of June 2003

---

The values given are for Imports and Exports added together.
These Countries represent 68.77% of U.S. Imports, and 66.36% of U.S. Exports in goods.

                                                   Year To Date
                                    Total in         Total in
                                    Billions         Billions
 Country Name                       of U.S. $        of U.S. $

 CANADA                                 33.38           197.70
 MEXICO                                 19.34           114.21
 CHINA                                  14.23            79.36
 JAPAN                                  14.14            84.15
 FEDERAL REPUBLIC OF GERMANY             8.08            48.02
 UNITED KINGDOM                          6.46            38.12
 KOREA, REPUBLIC OF                      5.21            29.22
 TAIWAN                                  4.18            23.02
 FRANCE                                  3.93            22.96
 MALAYSIA                                3.06            16.72
 

Mr Reynolds closes with "If the rhetoric gets too annoying, ask the authors for a few facts. They just hate that" having himself provided only rhetoric and no facts. Above is what verifiable facts look like.