Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. He has authored two books and more than sixty scholarly works focusing on state and local public policy, including tax and expenditure policy, and the impact of Wal-Mart on local economies. Below, he shares his take on the future of America’s manufacturing sector.
MPT: What’s the state of American industrial production heading into 2018?
Michael J. Hicks: We are, right now, at the peak of industrial production in the United States. By every measure of production, we are at record levels. The industrial production index peaked in December 2007, then dropped by roughly 15 percent by the summer of 2009. It took five years to recover to a second peak in 2015. As the world economy dipped in 2015 and 2016, so too did U.S. industrial production. We are back at a record level of industrial output. It’s worth noting that total U.S. industrial production is more than twice what it was back in 1979, when employment peaked.
Other measures tell the same story. Inflation-adjusted manufacturing GDP peaked in Fourth Quarter 2017, both in dollar and quantity index measures. Importantly, new data on value-added of manufacturing offers an even more interesting insight into America’s manufacturing strength. Value-added is a measure of production that subtracts all the goods used in production. By making this calculation across all U.S. manufacturing, we omit all the spending by factories on imported parts. That number is at a record high right now.
MPT: How do these numbers relate to industrial employment?
Michael J. Hicks: Manufacturing employment, which all too many folks think is a good sign of the industry’s health, is about 1.5 million less than it was at the start of the Great Recession and about a third lower than at its peak month in 1979. While manufacturing employment has gained a full million jobs since the end of the recession, that rebound seems to be slowing. Still, the loss of manufacturing employment has been swamped by growth in other sectors. For every job we’ve lost in manufacturing since December 2007, we’ve gained six jobs in other sectors. The problem is the new jobs require different skills in different places. Moreover, turnover within manufacturing has had a very uneven effect on workers.
Since about 2000, manufacturing jobs held by non-college graduates have declined by almost 45 percent, while manufacturing jobs held by those with a college degree are up almost 17 percent. That means in net, all the new jobs and almost all the replacement jobs in manufacturing are going to college graduates.
MPT: Where are today’s industrial jobs located?
Michael J. Hicks: Geographically, there was very little relocation of manufacturing between rural and urban places since the start of the recession. But, the longer trend is far more disruptive, with nearly seven times the manufacturing GDP growth in urban American than rural America since 2000. That trend has returned since 2009, with the bulk of manufacturing GDP flowing to urban places.
Economists call this agglomeration, but it looks like urbanization to demographers. Since 2001, 60 percent of all manufacturing GDP growth has occurred in just ten cities, the smallest of which is about 2.2 million people. More than one in four metropolitan areas actually lost manufacturing GDP during this period.