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Manufacturing's Comeback: Numbers Fabricate a Complicated-Yet-Rosy Outlook

Mira Oberman/Getty Images File Photo
According to many economists, unreliable government data is leading to overly rosy conclusions about the health of the manufacturing industry.

In his 2014 State of the Union address, President Barack Obama hailed “a manufacturing sector that’s adding jobs for the first time since the 1990s.”

The administration has also launched two “innovation hubs,” in Youngstown, Ohio, and Raleigh, N.C., designed to bring research and development closer to production. The idea is that by linking the two, companies will be more inclined to keep production jobs in the United States. Two more hubs are planned for Detroit and Chicago.

On Capitol Hill, Democrats such as Rep. Robin Kelly of Illinois note the manufacturing rebound and argue for tax credits for employers who hire veterans or people on certain government assistance programs.

Republicans, on the other hand, say manufacturing’s recent successes point to the need for fewer government regulations and more domestic energy production.

Chad Moutray, chief economist at the National Association of Manufacturers, credits high-tech, super-productive factories making more valuable goods for the resurgence.

“Manufacturing has become more competitive on the global stage as manufacturing has become more lean,” he said.

In a recent series of bullish reports, the Boston Consulting Group argued that rising labor costs in China will also prompt firms to move production back to the United States. That will lead the United States to pick up between 2 million and 3 million jobs by the end of the decade, the firm says, contradicting the more somber projections from the BLS.

That’s quite a change from the 2000s, when a collapsing manufacturing industry, buffeted by Chinese competition, was almost given up for dead.

But some economists say the benefits of shifting global trends in costs and productivity, while real, have been inflated.

“The story you often hear — that output growth is healthy, that we’re seeing a lot of productivity growth so we’re not getting a lot of new jobs — is not quite right,” said Howard Wial, an economist at the University of Illinois at Chicago and a senior fellow at the Brookings Institution. “It’s become almost conventional wisdom. It’s, if not completely wrong, at least overstated.”

Shortcomings in Data

Many manufacturing experts say official statistics overstate manufacturing’s economic contributions because government statisticians do not have a good way to keep track of shifts to cheaper suppliers.

For instance, when an American manufacturer decides to switch from an American supplier to a cheaper foreign supplier, statisticians at the Commerce Department record that as a drop in inputs.

On paper, it seems as though the manufacturer is making more with less. In reality, that manufacturer still needs those supplies in the same quantity. It is simply paying less for them.

According to a 2011 paper by Houseman and three colleagues, this problem may have overstated the actual growth in manufacturing’s contributions to gross domestic product by about 20 percent between 1997 and 2007.

Houseman said a separate statistical quirk involving the computer and electronics industry also inflates manufacturing’s recent growth spurt. As computers have gotten both more powerful and cheaper, they have come to make up an outsized share of manufacturing’s contribution to the economy.

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