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Dustin Dwyer · The Controversial Economic Report That Challenges Everything We Think We Know About U.S. Manufacturing
March 22nd, 2012
Economic reports are not usually the kind of thing that gets the heart racing. But earlier this week, a non-profit think-tank called The Information Technology & Innovation Foundation put out a report that amounts to a bombshell.
We first read about the report in the Washington Post. The basic claim is that manufacturing in this country is not doing nearly as well as advertised. At Changing Gears, we’ve made a lot out of the productivity gains in manufacturing over the past couple of years. According to everything we’ve heard, manufacturing productivity has led the way out of the recession, and Midwest manufacturing has been a major driver of growth.
But the ITIF report provides a blunt challenge to that story line. Some of the claims in the report are controversial, and not widely accepted. But even the federal government now says there could be problems with how it measures manufacturing productivity.
And that could have big implications for the policies our leaders consider in the future.
In one sense, the report tells us what we already know – that manufacturing jobs in the U.S. dropped significantly during the last decade. But it says those job losses were more severe than most economists acknowledge – worse even than during the Great Depression. And the recovery hasn’t been nearly as strong as advertised:
“In short, the United States lost two million manufacturing jobs during the Great Recession, and after the recession just 166,000, or 8.2 percent, returned. That leaves 91.8 percent of jobs to be recovered. At the rate of growth in manufacturing jobs in 2011, it would take until at least 2020 for employment to return to where the economy was in terms of manufacturing jobs at the end of 2007.”
Most economists look at this job loss, and see a silver lining. Even though the U.S. has lost manufacturing jobs, output has been pretty steady, according to federal statistics. That means the manufacturing sector is more efficient, and more productive.
But the researchers at ITIF say that’s not true. They say the federal government makes mistakes in how it measures manufacturing output, and grossly overestimates productivity. From the report:
“Correcting for biases in the official data, ITIF finds that from 2000 to 2010, U.S. manufacturing labor productivity growth was overstated by a remarkable 122 percent. Moreover, manufacturing output, instead of increasing at the reported 16 percent rate, in fact fell by 11 percent over the period.”
This is where disagreements over the report begin. The debate gets a bit technical, but it the core disagreement is about the best way to measure output.
Most of the statistics on our economy come, in one way or another, from the federal government. Our stats on output come from an agency called the Bureau of Economic Analysis.
To understand the debate over how the BEA measures output, it helps to think of your computer. The BEA looks at that computer and says it’s twice as powerful as a computer you would have bought five years ago. So it counts as twice as valuable to the economy – in effect, it counts as two computers being produced.
But the ITIF researchers look at the data and say it’s still just one computer.
The example of the computer is an important one, because it turns out the computer industry has been by far the leading source of manufacturing growth in the U.S.
To understand these numbers better, I called Brent Moulton at the Bureau of Economic Analysis.
He takes issue with the way the ITIF report looks at productivity in the computer industry.
“There’s just a lot more computing technology, so I think counting the number of boxes doesn’t measure the output of computers in a sort of meaningful way,” Moulton told me.
He says these computers do add more value to the economy. And most economists would agree that this value has to be measured in the statistics somehow.
But Moulton agrees that the BEA numbers do have some problems.
For example, the BEA helped fund a recent report that found another problem with its measurements. In this case, the error is in how the BEA accounts for imports. Basically, this report claims the agency is underestimating how much of a role foreign trade plays in the economy.
The report says the government could be overestimating manufacturing growth in non-computer industries by as much as 49 percent.
This report was co-authored by Susan Houseman at the Upjohn Institute, based in Kalamazoo, Mich.
“Our statisital agencies were never set up to measure the kinds of economic activities that are happening now, in a rapidly globalizing economy,” Houseman told me over the phone.
She says the bias in federal output statistics are a real issue. But she also says you don’t even need to take the biases into account to realize that manufacturing is struggling pretty badly. You just need to look at the individual sectors within manufacturing.
“If you back computers out, the remaining 90 percent doesn’t look very good,” Houseman says. “And that’s in the BEA statistics. That’s just facts.”
So why does it matter that the productivity of manufacturing in this country has been oversold?
These numbers help determine policy. And when presidential advisors in the past have looked at rising productivity, and falling jobs numbers, they’ve claimed that our economy is becoming more efficient. They’ve claimed that manufacturing is going through the same transformation that agriculture went through: fewer workers, more value to the economy.
But Houseman doesn’t buy that argument. And neither do the researchers at ITIF.
What they see is an economic sector that is struggling to compete with increasing international trade. And they say it’s time for new policies to address the problem.
Ok, we’ll admit, Changing Gears has not always had a friendly tone toward Austin. But, mean-spirited jokes aside, Austin does seem to come up on this site a lot more than other non-Midwest cities. We’ve even written about Austin’s hopes to build its own local auto industry.
But when we saw the headline above, from this weekend’s Austin American-Statesman, it just seemed like this strange, long-distance flirting between cities could be the real deal. Detroit and Austin actually have a lot in common – both have great music, both have hipsters and both are pretty weird.
So how about it Austin? Do you want to go steady with Detroit?
Yes or No
March 14th, 2012
This month, we’re taking a look at some of the hidden assets of the industrial Midwest – the parts of our economy that don’t often get noticed when we talk about our strengths.
We found one hidden asset right smack in the middle of our manufacturing sector. It’s a machine that’s in literally thousands of factories across the Midwest. And, though, you might not have heard of it before, the CNC machine – and the people who operate it – are at the core of our economy.
CNC stands for computer-numerically-controlled. And what the computerized machine does is it machines things. That sounds ridiculous unless you know that machine is not just a noun. It’s also a specific manufacturing process.
It’s when you cut away a material. It’s basically commercial sculpting.
“Machining is at, or very close to, the foundation of manufacturing,” says Peter Zelinski, senior editor at Modern Machine Shop magazine.
Zelinski says, even if you’ve never heard of it, CNC machining is essential to your life.
“Any product you pick up and touch, it’s not too many steps away from a machining process,” he says.
Most of the parts in your car engine come from a CNC machine. Your kitchen cabinets – CNC machine. Your computer case, your iPhone earbuds – well, no. But the mold that created them – CNC machine.
Zelinski says the growth of these machines represents the biggest change in manufacturing over the last 20 years.
The people who run them are factory workers. But they also have to be computer programmers.
Steve Henkelman is a teacher at Grand Rapids Community College. He points to a computer keypad, hanging off a big gray box, and tries to explain to me the programming code for CNC machines.
Trent Ohren is one of the students in Henkelman’s class.
Ohren says he has friends who do other, more traditional, manufacturing work. CNC machining is nothing like it.
“They’re in more of the automotive,” Ohren says. “So going to the bar right after they get out of work, as opposed to when I do, it’s night and day difference. They’re covered in oil, and I smell like daisies.”
And the pay’s not too bad either.
Trent could come out of this 18-week class and get a job that pays close to double the minimum wage. More experienced machinists can make $50,000 – $60,000 a year. And they don’t need a four year degree to get there.
Right now, manufacturers are desperate for these workers.
Mike Hellman is one of the people looking for a skilled CNC machinist. He’s head of human resources for Display Pack, a company in Grand Rapids, Mich. Display Pack makes that impossible-to-open clear plastic packaging. The molds for the packaging are made on CNC machines.
Hellman’s been looking for a machinist for three months with no luck. A few years ago, machinists were getting laid off. Now no one can find them.
“People that I know that are in the industry, they’re back to work sometimes in a week,” Hellman says. “If they just put in the effort, start going and walking into the tool and die shops, they’re going to find somebody that’s in the same boat we are, where they’re looking for somebody.”
Last year, The Manufacturing Institute surveyed companies, and found that as many as 600,000 jobs are going unfilled in this country, because there aren’t enough good workers.
And the biggest chunk of that number is for skilled production workers, including CNC machinists.
Peter Zelinski from Modern Machine Shop magazine, says it’s one of the biggest problems U.S. manufacturers face.
“It wouldn’t be competition from China,” he says. “The number one concern right now is finding skilled people.”
And that’s really what the future of manufacturing in the Midwest is about. Smarter workers. Smarter machines. With computer numerically controlled machines at the heart of it all.
Previously, Changing Gears’s Kate Davidson reported on “lights-out machining,” a process that uses CNC machines. Niala Boodhoo reported on the high demand for high-skill workers, Dan Bobkoff asked “What is advanced manufacturing?” and we blogged about the soaring sales for machine tools, which includes CNC machines.
Here’s what you do: Click on the video, and pop it out to full screen.
As you watch, remind yourself that this is the place they call the Rust Belt. Remind yourself that this is the place that cannot keep its talented young people, because they say it’s too cold. Too uninspiring. Too boring.
Remind yourself that they say those things.
Remind yourself that none of it is true.
Then, get back to work.
What would it look like if you took a platoon of helicopters and airlifted the entire Chicago L system and dropped it on Detroit? It would look like the map you see above. The map was made by a reddit user, who goes by the handle “northsider1983.”
The map gives a sense of the scale of both cities, and their very different transit options. Detroit, of course, doesn’t have a rail system. It has the People Mover, which covers all of 2.9 miles. It’s pretty arguable whether Detroit even has a functioning bus system these days (though there was a time when Detroit’s streetcar system was far more extensive than today’s L).
But Detroit’s transit dreams still have some life left in them. Businessman Dan Gilbert said again this week that he expects the new light rail line along Woodward Ave. “will be in the ground by the end of this calendar year.”
March 6th, 2012
The goal of Changing Gears is to talk about the transformation of our economy in the Midwest, and to prepare ourselves for a brighter future. The time scale we’re usually talking about is in range of decades, maybe a century or two.
But, this morning, we found ourselves thinking about what life could be like in the Midwest 100,000 years from now. The inspiration came from the animation created above by New Scientist.
We’re not scientists around here, but it seems there are some good reasons to be bullish about how the Midwest could fare over the long, long term. We’ve got all this water around us. We do pretty well at growing our own food. And, even though our manufacturing economy has taken a beating in the last few decades, our culture of making things has to be worth something in the grander scheme.
Just for a moment, forget what the next 10 years will look like in the Midwest. Forget about what will happen in your lifetime. Tell us what you think the Midwest will look like a thousand years from now. Then 10,000 years. Then 100,000.
Then, think about what things we can do now to make a difference.
In more than 100 years of manufacturing ingenuity in the Midwest, there have been very few limits. From steamships, to motor cars, to solar panels, people in the industrial Midwest can make almost anything.
So, where is my flying car? Seriously. I’ve been waiting for, like, ever.
Flying cars have been a fantasy for almost as long as there have been cars. Henry Ford reportedly tinkered on a plan. The first car to get regulatory approval for both air and land in the U.S. was in 1956.
Now, here comes news of the Terrafugia Transition, which will have its public debut at the New York Auto Show next month.
The Transition is built in Massachusetts, and the first one is scheduled to be delivered later this year. If you want to buy one, all you need is $279,000.
The Economist says the Transition is one of at least a dozen flying cars in development right now. The magazine says the new designs are all trying to take advantage of the “Lite-Sport” aircraft designation that was created by the Federal Aviation Administration several years ago.
I, for one, wont’ believe in flying cars until I see one – parked in my driveway. Here in the Midwest.
February 29th, 2012
That’s why I was pleased to learn that the bank invited a group of people from different cities across the Midwest for a day-long event yesterday to kick off a new project that will look at what works – and what doesn’t – when encouraging economic revitalization.
Among the attendees: representatives from ArtPrize, the annual Grand Rapids public art competition that has brought hundreds of thousands of people to the city’s downtown during the fall event. If you’re not familiar with ArtPrize, here’s some of our reporting on the competition.
ArtPrize’s Brian Burch said the day went well, with lots of analysis and recommendations but a few overarching solutions that are applicable to many industrial cities.
Burch said it also confirmed many of the concepts behind ArtPrize – the idea that a focus on people and creativity foster innovation and economic growth.
“The best things communities can do is invest in education and develop a marketplace of ideas that make it easier for anyone to realize their dreams and take ideas into action,” Burch said.
You can learn more about the Fed’s initiative here.
Dustin Dwyer · How To Change The Dark And Dirty Image Of Manufacturing, A Live Web Chat With The Creator Of The Edge Factor
February 24th, 2012
Last week, we told you about a new show called The Edge Factor. The show is trying to give a view of manufacturing as it exists today: high-tech, challenging and cool. Join us here at 1p.m EST, noon Central time for a live web chat with Jeremy Bout, creator of The Edge Factor.
The chat will go live at 1p.m. EST!
At a campaign rally in Georgia on Monday, Newt Gingrich tore into President Obama’s plan to provide subsidies for electric vehicles. He also decided to take a swipe at the Chevy Volt.
“Here’s my point, folks,” Gingrich said. “You can’t put a gun-rack in a Volt.”
That turned out to be a falsehood that YouTube user jtmcdole couldn’t abide.
Here’s his video response: