What Does it Mean when Manufacturing Loses jobs while Output Increases?

By: Kellyann Davis
CEO
BlackSand Research

The Bureau of Labor Statistics reported this morning that the Manufacturing industry lost 14,000 jobs in May after gaining 19,000 in April. Hit hardest among the Manufacturing sectors was motor vehicles, followed closely by transportation equipment, and computers and electronic components. The retail industry was hit even harder losing 27,000 jobs from its' more than 15 million job payroll. The winner...again...was the Health Care industry where 22,000 jobs were created.

The news about manufacturing jobs is bad, but other data such as Industrial Output, Productivity, and Capacity Utilization tells a different story about the Manufacturing industry's performance. Output rose 5.5 percent in the first quarter of 2006 along with the decrease in employment in Manufacturing resulted in a 5 percent increase in productivity and a 2.4 percent increase in capacity utilization.

So what do all these numbers mean? Is it just a terrible time to be a production worker? Think of the situation this way, over the past year, manufacturing output per hour increased by 8 percent while output increased 5 percent. There's your employment loss in the equation, looks like the lucky production workers that kept their jobs really put out in April. And the manufacturing companies did fairly well.

Manufacturing is producing and exporting more goods than ever with fewer employees. Since 2001 more than 3 million manufacturing jobs have been lost to the American economy. Some of that employment loss came from contraction of industries in the U.S. like Steel, Furniture, and Textiles, some came from the redefinition of manufacturing when the Bureau of Labor Statistics transitioned from SIC to NAICS industry designations, some came from increased human productivity, some from better automation, lean manufacturing methods, and IT systems, some came from offshoring jobs, and some came from outsourcing jobs. The point is, it's a multivariate equation that comes with an upside for companies and for consumers albeit a downside for the American manufacturing worker; more and more efficient production for a growing array of markets, lower labor costs per unit, and lower prices. If you are in business, it's time to think about getting into new markets, find new customers, and keep production costs down any way you can.

For manufacturing workers, beware, the global marketplace does put you at a disadvantage due to global competition for your job. That said, American manufacturing jobs will always be around, after all, Americans consume a quarter of all the goods produced on the planet and we only make up 4 percent of the population. That means we have the best market to sell into in the world and it makes sense to produce, or at the very least assemble the big items in the market you are selling into, just ask Toyota. And, despite some protest, Americans like to shop at Walmart where many of the smaller goods produced offshore are sold for the lowest price available. Additionally, high skill manufacturing jobs will materialize [forgive the pun] in sectors like Biotech and Alternative Energy. Much research and development will continue, especially as the government increases funding for basic research, the kind that industry doesn't invest in due to very high risk and typically low ROI. Like the companies they work for, American manufacturing workers need to stay in school for life to compete in the global marketplace.