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U.S. manufacturing is alive, well and worthy of our respect and nurturing through smart public policy.

By Knight Kiplinger, Editor in Chief

From Kiplinger's Personal Finance magazine, January 2008

Of all the myths about our dynamic economy, none is more persistent -- or more wrong -- than the "death of U.S. manufacturing."

In fact, not only is manufacturing alive and well, but U.S. factory workers are also producing -- and exporting -- record amounts, both in quantity and in dollar value. Here are a few of the facts: Since 2001, the U.S. economy has grown at an average annual rate of 3.5%, but manufacturing output has risen even faster, at 4% a year.

Dwarfing our rivals

The U.S. is the world's leading manufacturing nation, accounting for almost 25% of all goods produced each year. Despite the stunning rise of China, India and other emerging nations, America's share of the world's total annual manufacturing has remained virtually level since 1982. Other major producing nations have seen declines in their global shares.

The U.S.'s annual manufacturing output, valued at $1.5 trillion in 2005, is bigger than the entire economy of nations such as Canada, South Korea, Brazil and India. U.S. factories still produce much more than China's, although China's output is growing at a much faster rate.

When it comes to productivity, defined as the value of goods and services produced in each hour of work, the U.S. is a world leader, and manufacturing is the reason. Between 1987 and 2005, U.S. factory productivity grew by 94%, about two and a half times faster than productivity in the service sector.

Improving productivity enables factory workers to earn higher wages and benefits. U.S. manufacturing employees earn, on average, about 23% more in wages and benefits than the rest of the U.S. workforce ($65,000 versus $53,000), which is mostly involved in services.

Moreover, high productivity means that employers can earn higher profits even if they can't raise prices because of tough global competition. The rising productivity of U.S. factory workers, coupled with cutting-edge product innovation and design, is what keeps our factories competitive with low-wage overseas sites.

Meanwhile, the U.S. is selling record amounts of American goods overseas because of rising living standards abroad, the high quality of U.S.-made products, and the rising value of the euro, yen, pound and other currencies.

Attracted by high U.S. productivity and our open markets, foreign manufacturers have invested heavily in the U.S. An estimated one in 12 American factory workers now work for foreign-based companies, making everything from cars to chain saws.

A misunderstanding

So why the widespread belief that "America isn't making anything anymore," as Ross Perot famously -- and wrongly -- stated in 1992? Quite simply, it's confusion between employment and output. Because of automation, fewer workers are needed to manufacture a growing amount of output, so manufacturing employment continues to fall.

It's been the same story for decades in agriculture -- still an expanding and highly profitable enterprise -- but no one whines that "we're not growing anything anymore." It's also happening in sophisticated, high-wage services, such as finance, medicine and engineering.

At any given time, some sectors are laying off workers and others are expanding. But amid all the ferment, the total number of jobs in the U.S. continues to grow.

Yes, U.S. homes are filled with imported consumer goods -- apparel, toys, fancy TVs and more. But the big, expensive U.S.-made products that we don't purchase personally -- jetliners, medical equipment and much more -- are the star exports of the global economy.

The odds are good that U.S. factory production will continue to grow, with a constantly changing mix of high-tech products, including many that won't have existed five years before. So manufacturing will continue to be a critically important sector, worthy of our respect and nurturing through smart public policy.

Columnist Knight Kiplinger is editor in chief of Kiplinger's Personal Finance, The Kiplinger Letter and Kiplinger.com.

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