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The Myth Of US Industrial Revival

 January 31, 2012 07:44 PM

Currently a number of attempts are being made to claim a major ‘revival' of US industry is taking place. For example Harold L. Sirkin, of the Boston Consulting Group, writes: ‘A resurgence of U.S. manufacturing seems to be in the offing. With production costs rising in China, some companies are bringing their manufacturing back to the U.S…. That's partly confirmed by the data: The Institute for Supply Management (ISM) recently reported that U.S. manufacturing had expanded for 24 consecutive months. Likewise, the Federal Reserve reported a 0.6% increase in manufacturing in July 2011, with a year-on-year gain of 3.8%.' Washington Post columnist Vivek Wadha claims: ‘America is destined to once again gain its supremacy in manufacturing, and it will soon by China's turn to worry.'

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It is therefore important to be clear that these claims are a myth. As may be seen in Figure 1 US industrial production has not even regained pre-financial crisis levels. In December 2011, the latest available data, US industrial production was 5.4 per cent below its peak in the previous business cycle. Equally striking, for the long term, is that over the two last US business cycles average annual US industrial growth has been only 0.3 per cent. In short, far from a ‘rebirth' of US industry occurring, US industrial production has scarcely grown for ten years and so far in the present business cycle it has not even regained its previous peak level of output. On the latest monthly data it would take US industry two years to regain its previous peak output.

Figure 1

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12 01 25 Industrial Production


Sirkin presents as evidence to justify his claims: ‘Volkswagen, for example, recently opened a new $1-billion factory in Chattanooga, Tennessee; Embraer, the Brazilian manufacturer of mid-size commuter jets, recently opened an assembly plant in Melbourne, Florida; and Mitsubishi Nuclear Energy Systems, which builds nuclear power plants and components, is locating a new engineering center in Charlotte, North Carolina.' Publicity was given by others to a US company exporting chopsticks to China.

Unfortunately presentation of individual examples proves nothing. Industrial production is an aggregate, an average of different movements by companies. There will therefore always necessarily be cases above and below the average.

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