What’s really happening in US manufacturing?

In our FRED graph above, we compare labor productivity for all workers in the manufacturing sector alongside the share of manufacturing employment in total US nonfarm employment since 1987. The graph tells a compelling story: We’re producing more per worker in manufacturing, but with far fewer workers relative to the overall workforce.

Manufacturing productivity rose strongly from the late 1980s until the Great Recession in 2008-09. During this period, workers were producing more value per hour due to advances in automation, more-efficient production processes, and improved capital equipment. At the same time, the share of manufacturing workers in the total nonfarm workforce has been shrinking. This shows that even as factories are producing more, they require a smaller share of the labor force. Notably, these trends—often referred to as structural transformation—were underway long before the China trade shock of the early 2000s.

Since 2010 or so, we see that labor productivity in manufacturing has largely flattened, showing little growth compared with the period before 2010. Meanwhile, the decline in the manufacturing employment share has also slowed considerably.

This divergence has large implications. First, it underscores how innovation is reshaping manufacturing. The trends displayed above are consistent with ideas surrounding automation and technology adoption. Second, it challenges notions about manufacturing being a major job engine. If productivity keeps rising while the share of manufacturing employment falls, employment gains in the economy will need to come from other sectors.

How this graph was created: Search FRED for “All Employees, Manufacturing.” Above the graph on the right, click on “Edit Graph,” add a series by searching for “All Employees, Total Nonfarm,” and apply formula a/b. Open the “Add Line” tab and search for and select “Manufacturing Sector: Labor Productivity (Output per Hour) for All Workers.” Open the “Format” tab and place the legend on the right for the second line. Start the graph on 1987-01-01.

Suggested by Alexander Bick and Kevin Bloodworth II.