By Spencer

The typical reaction and/or discussion about the decline in manufacturing employment over the years indicates to me that there is a lot of confusion about what it means.

Most comments seem to imply that falling manufacturing employment means that industrial/manufacturing output is falling in importance in the economy. But if you compare the index of industrial output published by the Fed to the BEA data on real GDP you see that industrial output has kept pace with real GDP over the decades and has not fallen in importance
even though industrial employment has fallen as a share of total employment and in absolute numbers in recent years.

But there is a problem with this comparison. The index of industrial production is an index of
physical output — tons of steel, kilowatts of electricity, number of light vehicles, etc. — while
real GDP is a measure of the value of output. So in a way comparing industrial production and real GDP is like comparing apples and oranges. It can be done, but you have to be careful to do it right.

So the Federal Reserve Board does calculate and publish the value of production in real dollar terms and if you compare the value of industrial production to the same measure of the value of real GDP you do see that real GDP has grown faster than industrial production. But the comparisons are 3% for real GDP and 2.4% for production, a significant difference but not as bad as many people seem to believe.

But for many people living and analyzing developments in the rust belt this moderate difference does not seem to conform to their experiences. Everything they see tells them that the differences are much greater than this. And they are right. If you look within the industrial production numbers you see that the 3% growth trend shown in the first charts stems from two
very different trends. One is the growth of high technology products like computers and other office equipment, communication equipment and semiconductors. Over the last quarter century production of these high technology products has averaged about a 21% growth rate while all other industrial output only experienced a 1.1% growth rate. This growth is more consistent with the general feeling that traditional rust belt production has been stagnate and with positive productivity this generated falling rust belt manufacturing employment.