Is Manufacturing Making A Comeback?

Here is a graph contrasting the civilian unemployment rate and the unemployment rate for the manufacturing industry that may show signs of a small resurgence of manufacturing in the US.

manufacturing making a comeback

Prior to the last Great Recession, unemployment in the manufacturing sector tracked the overall civilian unemployment fairly equally but after 2008 the manufacturing industry saw a much worse unemployment rate (peaking at 13.0%) than the civilian unemployment rate (peaking at 10.0%).

As you can see from the graph above, the unemployment rate for the manufacturing sector has not only caught up with the civilian rate but has overtaken it (5.2% vs 6.3%).

Why did this happen?

I think a lot of the explanation for the much higher unemployment rate for the manufacturing sector after the Great Recession was due to companies drastically scaling back production and cutting costs as quickly as possible to survive. Manufacturing can be cut quickly by idling plants to reduce costs and with consumer demand dropping this was a very predictable move.

And this drastic cost cutting appears to have been an overcorrection because in early 2010 we saw that the manufacturing sector unemployment dropped 3 percentage points (13.0% to 10.0%) while the civilian unemployment rate only dropped 0.2 percentage points (9.7% to 9.5%). Once companies realized they had cut too deep they started to hire back employees as consumer demand started to creep back up.

But what explains the lower manufacturing unemployment rate now?

I’m sure some of it is “on-shoring” (bringing back products manufactured off shore now that labor rates in places like China are starting to increase) but it may just be due to the gradual (and I do mean gradual) improvement of the economy. I don’t really have the answer here but the data do show some glimmer of hope for the manufacturing sector.

And make no mistake about it; we need a thriving manufacturing sector in the US. Not only for the quality jobs that manufacturing provides but for the single fact that once we lose the ability to manufacture ‘things’ then we’ll quickly lose the ability to innovate and design.

It should be noted that this improvement of the manufacturing sector happened in spite of (not because of) the disastrous policies of Obamanomics. Think what this resurgence in the manufacturing sector could’ve looked like if the US economy had not been handcuffed by Keynesian economics and other ‘stimulus’ fiascos. What a wasted opportunity these past 5 years have been for millions of hard working Americans.

My fear is this slight resurgence in manufacturing will be squelched next year when the Obamacare employer mandate kicks in and companies return to cost cutting measures to pay for this albatross.

But then again, maybe there is hope in the midterm elections….

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