Structural Change in Manufacturing

Mark SchweitzerFederal Reserve Bank of Cleveland

April 27, 2004

Outline

• The current situation and the business cycle

• Look inside manufacturing productivity growth

• Where are the workers going?

The Current Employment Situation

0

5

10

15

20

25

30

35

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002

MANUFACTURING:SHARE OF EMPLOYMENT

Percent of total employment

Note: Shading indicates periods of economic contraction.

0

5

10

15

20

25

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002

MANUFACTURING:LEVEL OF EMPLOYMENT

Millions of workers

Note: Shading indicates periods of economic contraction.

-20

-15

-10

-5

0

5

10

0 3 6 9 12 15 18 21 24 27 30 33 36

BUSINESS CYCLE PATTERN: MANUFACTURING EMPLOYMENT

Months from previous peak

2001-

Percent change from previous peak

AverageAverage range Total Change from March 2001: -2,621,000

0

2

4

6

8

10

12

14

16

-40 -38 -36 -34 -32 -30 -28 -26 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10

MANUFACTURING GROWTH FROM PREVIOUS PEAK (March’01 to Feb’04)

Growth rate from the previous peak

Share of employment (percentage)Overall manufacturing growth: -15.5%

0

5

10

15

20

25

30

35

40

-26 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4 -2 0 2 4 6 8 10

MANUFACTURING GROWTH (Aug’03 to Feb’04)

Growth rate

Share of employment (percentage)Overall manufacturing growth Aug’03 to Feb’04: -0.7%

Fourth District Beigebook

• Manufacturing has experienced a profound scaling back over the last 5 years– Employment reduced sharply

– Capital spending held very low

– Turned around only over the past few months

• Manufacturers outlook– Cautious about the future

– Employment gains likely to be limited

– Productivity growth continuing

Looking Inside the Productivity Machine

-2

0

2

4

6

8

1950 1960 1970 1980 1990 2000

MANUFACTURING PRODUCTIVITYAnnual percent change

Note: Shading indicates periods of economic contraction.

ManufacturingNonfarm business sector

BLS INDUSTRYPRODUCTIVITY PROGRAM

• The Bureau of Labor Statistics produces annual measures of productivity by detailed industry– Manufacturing Industries

• Data provide nearly complete coverage• 4-digit NAICS industries (e.g., basic chemicals or

industrial machinery)

– Services Industries • Data provide coverage of about half of the service sector• 4-digit NAICS industries (e.g., full service restaurants or

automotive repair and maintenance)• The industries for which data are available are the ones

with the most reliable productivity measures

0

4

8

12

16

20

24

28

-20 -15 -10 -5 0 5 10 15 20 25 30

PRODUCTIVITY GROWTH 1990-1995

Growth rate (annual average)

Percent of employment

Manufacturing

Computer and peripheral eqpt.

Iron and steel mills

Ship and boat building

Mean is 3.7%

Semiconductor eqpt.

0

4

8

12

16

20

24

28

-20 -15 -10 -5 0 5 10 15 20 25 30

PRODUCTIVITY GROWTH 1990-1995

Growth rate (annual average)

Percent of employment

ManufacturingServices

Commercial equipmentSpecialty food stores

Grocery stores

Mean is 2.4%

Mean is 3.7%

0

5

10

15

20

25

30

35

40

-20 -15 -10 -5 0 5 10 15 20 25 30

PRODUCTIVITY GROWTH 1996-2001

Growth rate (annual average)

Percent of employment

Manufacturing

Computer and peripheral eqpt.

Semiconductor eqpt.Apparel knitting mills

Mean is 3.7%

0

5

10

15

20

25

30

35

40

-20 -15 -10 -5 0 5 10 15 20 25 30

PRODUCTIVITY GROWTH 1996-2001

Growth rate (annual average)

Percent of employment

ManufacturingServices

Wholesale chemicals Electronics and appliance stores

Advertising agencies

Mean is 2.7%

Mean is 3.7%

CORRELATION BETWEEN PRODUCTIVITY AND OUTPUT

Output growth

1990-1995

Output growth

1996-2001

Manufacturing productivity growth 0.86 0.81

Services productivity growth 0.79 0.83

CORRELATION BETWEEN PRODUCTIVITY AND EMPLOYMENT

Employmentgrowth

1990-1995

Employmentgrowth

1996-2001

Manufacturing productivity growth -0.17 -0.12

Services productivity growth 0.11 0.21

Where Have the Workers Gone?

-4

-2

0

2

4

6

0 3 6 9 12 15 18 21 24 27 30 33 36

BUSINESS CYCLE PATTERN: NONFARM EMPLOYMENT

Months from previous peak

2001-Average rangeAverage

Percent change from previous peak

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

0 3 6 9 12 15 18 21 24 27 30 33 36

BUSINESS CYCLE PATTERN: UNEMPLOYMENT RATE

Months from previous peak

Change from previous peak

2001 -Average rangeAverage

0

1

2

3

4

5

6

7

8

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04

UNEMPLOYMENT RATEPercent

Manufacturing

Total

Fraction of Manufacturing Workers Employed Next Year

90

91

91

92

92

93

93

94

1999 2000 2001 2002 2003

Percent

Annual Flows of Former Manufacturing Workers

0

1

2

3

4

5

6

Unempl

oyed

Retire

d

Disab

led

Disco

uraged

Oth

er N

ILF

1999 2000 2001 2002 2003

Percent

Conclusions• The decline in employment in the latest

recession has been unusually large and has abated little

• Manufacturing productivity has risen substantially

• However the correlation with employment growth is weak

• Manufacturing workers continued to flow out of employment through 2003

• Job losers have largely joined the unemployed

Structural Change in Manufacturing

Mark SchweitzerFederal Reserve Bank of Cleveland

April 27, 2004