U.S. Manufacturing: The World's Third Largest Economy

Greg Galdabini

During the recent recession, many observers wrote American manufacturing's obituary, claiming that it could no longer be a world leader because of intense competition from low-cost competitors.

As ESPN College Gameday host Lee Corso is apt to say, "Not so fast, my friend." The U.S. manufacturing sector generates $1.7 trillion in value each year—equivalent to nearly 12% of GDP. It supports over 17 million U.S. jobs. About 12 million Americans—or 9% of the workforce—are directly employed in the manufacturing industry.

In 2011, US manufacturing companies as a group had their best year ever in terms of after-tax profits, with almost $600 billion in after-tax earnings according to the Department of Commerce. Drawing from IndustryWeek's annual ranking of the 500 largest publicly held US. manufacturing companies in 2012 based on sales revenue, AEI's Mark Perry had some fun comparing U.S. manufacturing to its overseas competitors:

1. The combined sales revenue (including global sales) of the top 500 US-based manufacturing firms in 2012 was $6.01 trillion, which was a 17.2% increase over 2011 sales of $5.13 trillion. To put those sales in perspective, if those 500 US manufacturers were considered as a separate country, their revenue last year of  $6.01 trillion would have ranked as the world’s third’s largest economy behind No. 1 US and No. 2 China, and slightly ahead of No. 4 Japan’s entire GDP of $5.98 trillion in 2012.

2. The sales revenue from the top ten US manufacturing industries totaled $4.83 trillion in 2012 (see chart above), which was 44% more than Germany’s entire GDP of $3.36 trillion last year.

3. Annual sales of $1.62 billion in 2012 for America’s single largest manufacturing industry – petroleum and coal products – was larger than the GDP of Australia last year of $1.54 trillion, and almost as much as Canada’s $1.77 trillion in GDP in 2012.

Still, there are realities of 21st century manufacturing that are difficult for some to accept. Speaking recently at the Greater Elkhart (IN) Chamber of Commerce, U.S. Chamber of Commerce Chief Operating Officer David Chavern said:

Manufacturing jobs have dropped – a lot. U.S. manufacturing jobs peaked at 19.5 million in 1979. But by 2010, the number of Americans directly employed in manufacturing fell to a new low of 11.4 million. Where did those jobs go? Mostly to a country called “productivity.” Technological change, automation, and widespread use of information technologies have enabled firms to boost output even as some have cut payrolls. These advancements are also allowing us to make high-value-added products that drive growth, innovation, and competitiveness.

Chavern notes that some U.S. manufacturing production has gone overseas to be closer to customers -- after all, 95% of the world's consumers live outside the United States. And some low-value, labor-intensive production -- think t-shirts -- has been permanently lost to low-cost competitors. But U.S. manufacturing can strengthen its global competitiveness, Chavern says, if our nation's core competencies and knowledge are allowed to grow and thrive. Achieving that comes down to the three Ps—People, Perspective, and Policies:

People. The manufacturing industry needs a workforce with the advanced skills and training needed on today’s technology driven factory floor.

Perspective. Too often, politicians think our economy ends at our borders. The government can do whatever it wants in terms of tax policy or regulatory policy—and businesses here should just keep growing and adding jobs here no matter what other countries do. Instead, the administration and Congress should embrace the idea that the U.S. should be the very best place in the world to do business—and they must advance policies that will make it reality.

Policies. Many of our standing policies have done fundamental, long-term damage to our manufacturing sector.

Jay Timmons, CEO of the National Association of Manufacturers, agrees. In NAM's A Growth Agenda: Four Goals for a Manufacturing Resurgence in America, released today, Timmons says [emphasis mine], "Unfortunately, Washington is holding manufacturers back. Our competitiveness is slipping, so much so that it’s now 20 percent more expensive to manufacture in the United States compared to our competitors, excluding the cost of labor, and that cost disadvantage is largely our own doing."

Let's hope that the president and Congress are listening.