Factoid: US Manufacturing (Again)

Apparently, Oct 2 was Manufacturing Day in the US and Mark Perry took the opportunity to push his recurring theme of enduring US manufacturing strength. In his post, Perry updated his graph of US manufacturing output and employment (below). I have shared previous editions of this graph with my students, so here is the updated one.

In general, the story remains the same. US manufacturing output grew dramatically in the late 1990s and early 2000s while employment in the sector dropped just as dramatically. Of course, the Great Recession put a hurt on the sector but it has largely recovered (though it is not growing like it did in the beginning of the century).

As always, Perry makes the argument that having less people making more stuff is good and has a graph showing the rising worker productivity in the sector (below). The graph shows that worker productivity in the manufacturing sector more than doubled in the 13 years from 1997 to 2010. Note that the previous doubling took 42 years from 1955 to 1997. The point to be taken here is that US manufacturing workers have been improving their competitive edge on foreign workers through productivity increases which render simple comparisons of US and foreign wages meaningless.

However, the bigger story is in the graph on US spending on food, cars, clothing and household furnishings (i,e,, stuff we buy). Whereas US consumers spent over 40% of their disposable income on such stuff in 1950, today they spend just over 15% on it today. Perry sees two things going on here: "As US manufacturing has become more technologically advanced and efficient, the price of manufactured durable goods has fallen in relation to both: a) other consumer products and services, and b) Americans’ after-tax disposable personal income." Or, as I like to say, stuff is cheap nowadays.

Fair enough, but it is important to remember that price depends not just on the ability to supply stuff (i.e., the technology and efficiency of the manufacturing sector) but also on demand for stuff in general. While all of us consume more stuff than our parents did, we consume many things that aren't physical stuff at all. The price of all my TVs pales in comparison to my accumulated payments to Direct TV, as does the price of my smartphone to the cost of the service contract that came with it. And don't get me started with what I spend on healthcare.

Of course, Perry recognizes this when he includes the relative price of "other consumer products and services", but he is potentially missing growing demand for these things. Where innovation once meant building a better mousetrap (something that would be manufactured), it now more often means designing a better app (which is not manufactured in the traditional sense). Therefore. making physical stuff may not be the economic be-all and end-all it used to be.

Factoid: WB Predicts Poverty Below 10%

The World Bank is predicting that the proportion of the world's population living in extreme poverty will drop to 9.6% by the end of 2015. As they put it:

 The Bank uses an updated international poverty line of US $1.90 a day, which incorporates new information on differences in the cost of living across countries (the PPP exchange rates). The new line preserves the real purchasing power of the previous line (of $1.25 a day in 2005 prices) in the world’s poorest countries. Using this new line (as well as new country-level data on living standards), the World Bank projects that global poverty will have fallen from 902 million people or 12.8 per cent of the global population in 2012 to 702 million people, or 9.6 per cent of the global population, this year.

 The WB's press release is a bit awkward, so you might want to see the BBC's summary of the report.

While poverty is decreasing in all regions, the WB's report notes that the concentration of poverty has shifted from East Asia to Sub-Saharan Africa. In their words:

For the last several decades, three regions, East Asia and Pacific, South Asia, and Sub-Saharan Africa, have accounted for some 95 percent of global poverty. Yet, the composition of poverty across these three regions has shifted dramatically. In 1990, East Asia accounted for half of the global poor, whereas some 15 percent lived in in Sub-Saharan Africa; by 2015 forecasts, this is almost exactly reversed: Sub-Saharan Africa accounts for half of the global poor, with some 12 percent living in East Asia. Poverty is declining in all regions but it is becoming deeper and more entrenched in countries that are either conflict ridden or overly dependent on commodity exports.

Of course, the underlying story here is that the economic growth in China and India has moved hundreds of millions of people out of extreme poverty in the past decades while not much has stirred in Africa.