Sunday, February 06, 2011

US Manufacturing: Normally Lagging, now Leading

Something interesting is happening with this recovery. Actually, it’s something that was also an interesting feature of the Great Recession of 2007-09: the manufacturing sector of the US economy has been performing surprisingly well. In fact, it wouldn’t be too much of a stretch to say that manufacturing has been one of the important drivers behind the economic recovery (such as we’ve had) over the past two years. Normally manufacturing output and job growth lag overall economic recoveries in the US. This time manufacturing is leading it.

The following chart shows the change in real GDP and manufacturing production through the last three recessions (1990-91, 2001-02, and 2007-09). In each case manufacturing contracted much more sharply than the economy as a whole. And in the recessions of 1990 and 2001, manufacturing was slower to recover than the economy as a whole, and didn’t really enjoy a period of rapid expansion until well into the recovery in each instance. But this time is different; manufacturing output has actually been growing faster than overall GDP, right out of the gate.

The employment picture below tells the picture even more clearly. In the previous two recessions, manufacturing lost more jobs (proportionately), and recovered jobs more slowly (if at all), than the private sector as a whole.

The table below shows one more look at this phenomenon, while the next chart shows total manufacturing employment relative to manufacturing employment at the peak of the boom preceded each of the last three recessions.

Unlike the previous two recessions, this time around the manufacturing sector has recovered more quickly than the economy as a whole, and begun adding jobs sooner than the rest of the economy.

Let me add that in my work I interact with lots of manufacturing companies, and my personal observations match the data; manufacturing in the US is booming right now, despite the weakness in the economy overall.

Why does this recovery (and for that matter, the recession that preceded it) look so much different in the manufacturing sector of the US economy? It’s an interesting question, and one that I plan to examine in a few different ways this week.

Update: third chart added, and text edited slightly for clarity.

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