Reindustrialization in USA - Euler Hermes

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Euler HermesEconomic Outlook n° 1187 | Special Report | The Reindustrialization of the United States• • •u Further sector concentration of the U.S.manufacturing landscapeFigure 7 shows industries plotted on the horizontalaxis of growth in value added, versus the verticalaxis of growth in total output, over the time period2000-2010. The strongest industries are seen in theupper right quadrant, with the computer and electronicsindustry the clear standout with real valueadded, growing +417% since 2000. The petroleumand coal industry was also a strong performer withother attractive industries including food and chemicals.In general, durable goods manufacturing, suchas machinery and “other transportation” (excludingautomotive), along with “miscellaneous others”performed quite well. The weaker industries are inthe lower left quadrant and are dominated by lowervalue-added, mature businesses such as apparel, furniture,textiles, and wood.Table B summarizes the most buoyant sectors for theperiod 2000-2010. A gap has widened between themand the lackluster group leading to a stronger concentrationin U.S. manufacturing. The contributionof the top five sectors to U.S. manufacturing valueadded has risen from 51% in 2000 to 59% in 2010.u Further sector concentration of the U.S.manufacturing landscapeU.S. manufacturing has expanded along with the worldmarket in terms of total sales, but has steadily lost marketshare of sales, contracting from 22% in 2000 to 17% in2011(estimated). On the other hand, U.S. manufacturinghas managed to preserve its position in global valueadded, with a market share sliding only slightly from 23%to 22% over the same period, increasing slightly in 2012.The data suggests two possible explanations. First, itcould be that U.S. manufacturing has shifted towardhigher value added activities and has deserted thosemanufacturing sub-industries with lower value added.This possibility corresponds with the notion that it hasproven difficult for the U.S. to compete with low laborcost countries. For example, simple goods can be madein China much more cheaply than in the U.S., driving U.S.manufacturers out of those markets. The huge influx ofsimple, cheap Chinese goods is a perfect example of thisphenomenon. Labor and capital displaced by lower costgoods will then be moved to higher value-added manufacturing.This condition is a perfect demonstrationof the uncomfortable notion of “creative destruction”which is often very necessary for an economy to growin the long run but which is so painful in the short run.In this case the data may actually indicate a positive phenomenon.A second explanation arises from the fact that the differencebetween sales and value added can be thoughtof conceptually as a proxy for profit margin. Thus, thedata might suggest that American manufacturers aretaking smaller profit margins in a global environmentof slow growth and low inflation creating very strongdownward pricing pressures. This second explanationdoes not indicate a flaw in U.S. manufacturing, sincemanufacturers around the world have to contend withthe same conditions.7. Production and Value Added Index Changes 2010/2000 (Real Terms)Output changes in %Source: Bureau of Economic Analysis – Bureau of Labor Statistics12B. Breakdown of the Manufacturing Value Added by SectorRanking Ranking Sector Weight manufacturing2010 2000 value added in 20101 1 Computer and electronic product mfg 15.6%2 3 Chemical mfg 13.3%3 2 Food, beverage and tobacco product mfg 12.2%4 12 Petroleum and coal product mfg 10.1%5 6 Machinery mfg 8.2%6 4 Fabricated metal product mfg 7.1%7 10 Miscellaneous mfg 5.2%8 7 Other transportation equipment mfg 4.2%9 7 Plastics and rubber products mfg 3.9%10 9 Paper mfg 3.3%11 5 Motor vehicle, body, trailer, and parts mfg 3.2%12 12 Electrical equipment, appliance and component mfg 2.6%13 11 Primary metal mfg 2.5%14 14 Non metallic mineral product mfg 2.1%15 15 Printing and related support activities 1.9%16 16 Furniture and related product mfg 1.7%17 17 Wood product mfg 1.3%18 17 Textile mills and textile product mills 0.9%19 19 Apparel and leather and allied product mfg 0.7%Source: Bureau of Economic Analysis
Economic Outlook n° 1187 | Special Report | The Reindustrialization of the United StatesEuler HermesOver-performing in the aftermath of the crisis to regainhigher groundu Manufacturing rebound in the aftermath of thecrisisBy the end of 2011, U.S. GDP had recovered to levelsjust before the recession started in the fourthquarter of 2007. This recovery has been boosted bya substantial contribution from the manufacturingsector. As demonstrated in Table C, in 2010, manufacturingwas only 12.4% of the economy, yet itaccounted for 44.6% of its growth. In 2011, thosesame proportions were 12.8% and 37.2%. From thisperspective, manufacturing indeed led the economyout of the severe recession of 2008 and 2009.Furthermore, as shown in Figure 8, the only sectorto provide slightly more growth in 2010 and 2011was the entire services sector, which is six to seventimes larger than the manufacturing sector.ing the recession and how rapidly it has reboundedsince. Manufacturing has dramatically outpaced servicesfor the last two years and has fully demonstratedits role as the engine of the economic recovery. Theonly sector to fall more steeply than manufacturingwas construction, which plummeted as a result of theburst housing bubble, and has still yet to fully recover.In the wake of the decline caused by the economiccrisis, the manufacturing sector has been a modestcontributor to the improvement of the employmentscenario. However, this tepid increase of manufacturingemployment also signaled the end of a continueddecline which has been ongoing for decades.• • •Figure 9 demonstrates that since 2001 the U.S. manufacturingsector has shown higher sensitivity to theeconomic environment than the services sector has.It displays the annual increase in value added by sector,highlighting how much manufacturing fell dur‐C. Contribution of the Manufacturing Sector to US Economic Growth2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Part in U.S. GDP (in %) 11.7% 11.8% 11.9% 12.4% 12.5% 12.7% 12.9% 12.2% 11.5% 12.4% 12.8%Manufacturing partin economic growth (43,2%) 17.1% 17.4% 30.8% 15.5% 19.7% 25.9% (108,3%) (28,8%) 44.6% 37.2%GDP in real value; ( ): negativeSource: Bureau of Economic Analysis8. Contribution to U.S. GDP Changes by Sector4%3%2%1%0%-1%9. Annual Change in Real Value Added12%9%6%3%0%-3%-2%Service-6%-3%-4%-5%2001MiningConstructionManufacturingAgriculture2002 2003 2004 2005200620072008200920102011-9%-12%-15%2001ManufacturingServicesConstruction2002 2003 2004 2005200620072008200920102011Source: Bureau of Economic AnalysisSource: Bureau of Economic Analysis13
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Reindustrialization in USA - Euler Hermes

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