The Outlook for U.S. Manufacturing Economic Forecasting Conference J. Mack Robinson College of Business Georgia State University Atlanta, GA November 15, 2006 William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago
Overall performance
Manufacturing employment decreased by 15,000 jobs over the past twelve months Manufacturing employment percent 12 10 Percent change from year ago 8 6 4 2 0-2 -4-6 -8 Monthly change (saar) -10-12 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Manufacturing workers have suffered steep employment declines over the past several years Manufacturing production workers Trough = 100 120 115 Upper and low er bounds around GDP troughs 110 105 100 95 90 85 Current cycle 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quarters away from trough of real GDP Late expansion and recession Recovery or expansion
When changes in nonfarm employment are considered, the most recent manufacturing employment downturn is not unprecedented Manufacturing employment share percent change from year ago 10 8 6 4 2 0-2 -4-6 -8-10 1947 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02
Manufacturing job losses are geographically wide-spread and do not seem to be related to concentration of manufacturing employment Manufacturing employment 860 4 6 2 4-5 0 2-2 0-4 -10-6 -2-8 -4-10 -12-6 -15 percentage of total employment in manufacturing in 2002 AK 0 5 10 15 20 NV AK percentage of total NV WV ID NE NV UT CT TNemployment AL in manufacturing NM UT UT IA percentage of SD SD AR IN HI HI LA SD ID IDME in 2003 total MT NE MO MN MT FL DE KY OH WI HI VA OR TN SC 0 WY 5 OR 10 IA MSAL NM LA IA 15 employment in 20 OK KS WY NY GA AR WY CO CA TX TX NHTN IN MT MD MN SC OH MI AZ MO PA KY WI FL AZ FL AZTX NJ MO IL KY NJ WI VA CO NCMI IN WAGAGA CT AL 0 AK 5 WA 10 MN PA RI CA WA OH 15 20 MD NY IL NC MS NM MA DE VA MA KS AR CO VT NH NY MD OR IL KS SC NJ OK CA ME RI MS MI OK MA VT NH NC LAWV CT VTME PA NE RI DE WV size of bubble is determined by the percent change in in manufacturing em ploym ent 2003-2004 2002-2003 2001-2002 manufacturing in 2004 size of bubble is determined by the number of manufacturing workers in 2002 number of manufacturing workers in 2004 2003
Manufacturing output has been rising since the fall of 2003 Industrial output for manufacturing percent 40 35 30 25 20 15 10 5 0-5 -10 Monthly change (saar) Percent change from year ago -15 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Manufacturing output has expanded at a slower pace than previous cycles Industrial production Trough = 100 160 150 Upper and low er bounds around GDP trough 140 130 120 110 100 90 Current cycle 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quarters away from trough of real GDP Late expansion and recession Recovery or expansion
However, productivity within the manufacturing sector has grown at a faster rate than during any previous expansion Productivity - manufacturing sector Trough = 100 125 120 115 110 Upper and low er bounds around GDP troughs Current cycle 105 100 95 90 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quarters away from trough of real GDP Late expansion and recession Recovery or expansion
Manufacturing output in the United States has never been higher Industrial production - manufacturing Index 2002=100 120 110 100 90 80 70 60 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Manufacturing capacity utilization has been improving since June 2003 Capacity utilization - manufacturing percent 86 84 82 80 78 76 74 72 70 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
New orders and shipments for capital goods have been doing very well Nondefense capital goods, excluding aircraft and parts Billions of dollars (SA) 70 65 Mfgs' New Orders 60 55 50 45 40 Mfgs' Shipments 35 30 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
While more cyclical, profits in manufacturing have out-performed returns in nonfinancial corporate businesses Profits - as a percent of value added percent 30 25 20 manufacturing 15 10 5 nonfinancial corporate business 0 1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05
Industry performance
Real oil prices are well above levels of the past twenty years Real West Texas Intermediate oil price real dollars per barrel (2005 dollars) 100 90 80 70 60 50 40 30 20 10 1970 '75 '80 '85 '90 '95 '00 '05
This has translated into a 75% increase in mining and oil and gas field machinery output over the past three years Industrial output for mining and oil and gas field machinery Index: 2002=100 180 170 160 150 140 130 120 110 100 90 1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Capacity utilization for the machinery sector rose to the highest rate in over twenty-five years Capacity utilization: machinery percent 90 85 80 75 70 65 60 1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
The Caterpillar 797B costs over $4,000,000
Construction equipment production has improved markedly Industrial output for construction equipment percent change from year ago 140 120 100 80 60 40 20 0-20 -40-60 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Heavy-duty truck order books for 2006 are full, in anticipation of EPA regulatory changes that will take effect on January 1, 2007 Net orders per day - Heavy-duty trucks thousands of units 2.5 2.0 1.5 1.0 0.5 0.0-0.5 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Aerospace production remains robust Industrial output for aerospace products and parts percent change from year ago 50 40 30 20 10 0-10 -20-30 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
The high-tech sector s output growth has been at a solid rate Industrial output for computers, communications equipment, and semiconductors Percent change from year ago 75 50 25 0-25 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Steel industry growth has been slowing from extremely high rates Industrial output for iron and steel percent change from year ago 30 25 20 15 10 5 0-5 -10-15 -20 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
New vehicle prices have been under pressure since 1997 Price changes - new vehicles percent 12 Percent change from year ago 10 8 6 4 2 0-2 -4-6 -8 Monthly change (saar) -10-12 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06-0.6-0.3-0.3-0.3-0.2-1.5-2.0 0.1 0.2 0.6
Light vehicle sales have shown no growth for the past eight years Light Vehicle Sales millions of units saar 22 21 20 19 18 17 16 15 14 13 12 11 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 16.9 17.4 17.3 16.8 16.6 16.9 16.9 16.5
Passenger car sales have been moving higher Passenger car and light truck sales millions of units saar 13 12 11 Light trucks 10 9 8 7 6 Passenger cars 5 4 3 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Light truck market share has been falling since August 2004 Light truck share of the light vehicle market percent 65 60 55 50 45 40 35 30 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
While passenger car production has been relatively stable, light truck production has been falling Passenger car and light truck production millions of units saar 8 7 6 Light trucks 5 4 3 Passenger cars 2 1 0 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
GM and Ford produce some of the largest vehicles
Since 1999, General Motors sales declined by nearly a million vehicles Vehicle sales - General Motors millions of units 5.0 4.8 4.6 4.4 4.2 4.0 3.8 1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Ford s sales declined by nearly 1.3 million vehicles Vehicle sales - Ford millions of units 4.2 4.0 3.8 3.6 3.4 3.2 3.0 2.8 2.6 1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
DaimlerChryler s sales fell by nearly half a million vehicles Vehicle sales - DaimlerChrysler millions of units 2.7 2.6 2.5 2.4 2.3 2.2 2.1 1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
So with losses approaching 3 million units, the Big-Three s market share has deteriorated Big-Three share of light vehicle sales percent 76 74 72 70 68 66 64 62 60 58 56 54 52 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 68.5 65.6 63.1 61.8 60.1 59.1 56.9 54.4
So with sales slipping for the Big-Three, foreign nameplate models have risen by over two million units Vehicle sales - foreign nameplates millions of units 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
However new domestic production rose by over 900,000 vehicles Vehicle sales - foreign transplants millions of units 4.0 3.8 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Buy American 2005 Ford Mustang 2005 Toyota Sienna 65% U.S. and Canadian parts 90% U.S. and Canadian parts
Domestic content for the Big Three has been declining, while domestic content for the new domestics has been rising Average percentage of auto parts made in the U.S. and Canada for percent cars sold in North America 100 90 80 70 60 50 40 30 20 10 0 GM Ford DaimlerChrysler Toyota Honda Nissan 1997 2005
Light vehicle production has been declining at a more moderate pace than focusing on Big-Three losses would suggest Light vehicle production millions of units saar 14 13 12 11 10 9 8 7 6 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
Regional analysis
Construction and nondurable manufacturing have the largest employment concentration in the Southeast Southeast employment distribution (2004) 100 = national average share 80 85 90 95 100 105 110 115 120 Farm Natural resources and mining Construction Manufacturing Manufacturing - durable Manufacturing - nondurable Trade transportation and utilities Information Financial activities Professional & business services Educational & health Services Leisure and hospitality Other services Government
Nondurable manufacturing and information have the largest employment concentration in Georgia Georgia employment distribution (2004) 100 = national average share 60 70 80 90 100 110 120 130 140 150 160 Farm Natural resources and mining Construction Manufacturing Manufacturing - durable Manufacturing - nondurable Trade transportation and utilities Information Financial activities Professional & business services Educational & health Services Leisure and hospitality Other services Government
Georgia s employment has been doing relatively better than the nation Employment - average of July 2006 - September 2006 versus same period year ago 10 United States: percent change from year ago 8 6 4 Mining size of bubble is determined by the number of Georgia's employees in the industry Professional & business services Education & health services Other services Information 2 0 Manufacturing Government Trade, transportation & utilities Leisure & hospitality Construction -1 0 1 2 3 4 Financial -2 activities -4 Georgia: percent change from year ago
Georgia s manufacturing has been close to the experience of the nation, doing a bit better in durables and a bit worse in nondurable Manufacturing em ploym ent - average of July 2006 - Septem ber 2006 versus sam e period year ago 2 United States: percent change from year ago 1 Georgia: percent change from year ago -2 Durable 0-1 0 1 Nondurable -1-2 size of bubble is determ ined by the num ber of Georgia's em ployees in the industry 2
Summary Manufacturing continues to expand at solid rates Most industries are doing very well The domestic nameplate automobile manufacturers are struggling The domestic nameplate supplier base are also deeply affected Outside of the Big Three the rest of the domestic automobile producers are doing well
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