The Job Probably Didn’t Go To China

The U.S. has lost 5 million factory jobs since 2000. And trade has indeed claimed production jobs – in particular when China joined the World Trade Organization in 2001. Nevertheless, there was no downturn in U.S. manufacturing output. As a matter of fact, U.S. production has been growing over the last decades. From 2006 to 2013, “manufacturing grew by 17.6%, or at roughly 2.2% per year,” according to a report from Ball State University. The study reports as well that trade accounted for 13% of the lost U.S. factory jobs, but 88% of the jobs were taken by robots and other factors at home.  [Fortune 11/8/16] (emphasis added)

For all the palaver expended, and rhetoric spewed – 88% of the manufacturing jobs lost in the US were lost to “robots and other factors.”  The Ball State University study (pdf 2015) clarifies:

“Three factors have contributed to changes in manufacturing employment in recent years: Productivity, trade, and domestic demand. Overwhelmingly, the largest impact is productivity. Almost 88 percent of job losses in manufacturing in recent years can be attributable to productivity growth, and the long-term changes to manufacturing employment are mostly linked to the productivity of American factories. Growing demand for manufacturing goods in the U.S. has offset some of those job losses, but the effect is modest, accounting for a 1.2 percent increase in jobs beyond what we would expect if consumer demand for domestically manufactured goods was flat.” 

For “productivity” read Robotics and technological changes to production.  If any workers had cause to complain – they might be Chinese, since a factory opened in Dongguan which is fully automated.  However, since it takes Homo Sapiens to develop ideas about how to improve processes and products, the robots alone can’t take over manufacturing.  So, get ready for a new word: Cobotics.

“Cobotics is rapidly gaining momentum, and successful implementations to date have focused largely on specific ergonomically challenging tasks within the aerospace and automotive industries. But these applications will expand as automation developers introduce more sophisticated sensors and more adaptable, highly functional robotic equipment that will let humans and machines interact deftly on the factory floor.” [PWC.com]

Robotics, cobotics… both are associated with new processes in manufacturing; processes which have direct impacts on the number of people hired by manufacturing firms, and the training required for those who are hired.  Thus, before ranting about the Chinese – it’s important to remind ourselves that manufacturing no longer means smoke stacks and simple assembly lines.  It’s 3-D printing, robotics, cobotics and other “productivity” factors as well.

If the job of wrenching the Wadjets to the Widgets has been taken over by the Gimcrack Special 300A, how to increase employment in the manufacturing sector? We might want to start with DEMAND. Demand for civilian aircraft (Boeing specifically) helped a 4.8% increase in durable goods manufacturing in 2016. [WSJ]  However, since most people aren’t inclined to purchase their mode of transportation from Boeing, let’s consider something more realistic – automobiles.

“And while new-car prices continue to rise, the underlying demand has softened.“We don’t have a lot of pent-up demand now like we did coming out of the economic crisis,” said Bryan Bezold, an economist for Ford Motor.

Ford was among several automakers that posted sharp reductions in sales during August compared with 2015. General Motors, the nation’s largest automaker, said that it sold 256,000 vehicles during the month, which represented a drop of 5.2 percent.

G.M. has taken some criticism on Wall Street for scaling back on less profitable sales to rental-car companies and other corporate fleets. Instead, the company has focused on retail sales to consumers, which generally produce healthier profits-per-vehicle.” [NYT]

What softens “underlying demand?” The obvious response is that people will not buy what they cannot afford.   However, they may be induced to buy what they can’t afford if the financing is sold along with the vehicle. [ADM] Someone has been selling something since 1976 – granted the downward spike during recessions, witness the FRED trends in vehicle sales.

Auto Sales 2016 FRED Which probably has something to do with the trends in financing vehicles, also conveniently calculated and graphed by FRED for Finance Rates on Consumer Installment Loans at Commercial Banks: (New autos, 48 month loan)

Auto Finance Rates FRED

It certainly is easier to see one’s way clear to signing the loan agreement if the rate isn’t the 17.05% it was in 1982, and it’s closer to the 4.25% in April 2016.  And, as a nation we’ve been borrowing, as reported by the NYFRB:

Household Debt 2016

The fly in this ointment is the reported default rate – indicating people who bought, on credit, that which they ultimately could not afford. Again, from the NYFRB:

Loan Default Rates 2016 So far, so good.  For a look at the compilations on household debt between 2015 and 2016 the NYFRB has that information here.  What’s the point?

If we are looking for factors which impinge on the consumer purchases of durable manufactured goods, like cars and trucks, it’s prudent to look at what other forms of indebtedness are also at play in household finances.  Mortgage debt is still the first draw on the households in this country, however, student loan debt was the only form of household debt that continued to increase through the Great Recession and now has the second largest balance after mortgage debt. [NYFR]

While it would be nice to discuss manufacturing policy in terms of imports, exports, and employment – if we maintain that people will not buy what they cannot afford, and if mortgage and student debts hold priority in household bookkeeping, then it isn’t too difficult to see where at least some of the “underlying softness” in such markets as motor vehicles might reside.

Further, as consumer indebtedness increases financial institutions have more fodder for the securitization market, a positive prospect for the financial markets. However, as we learned in 2007-08 there is a limit to the burden the American consumer can bear.

Those manufacturing jobs aren’t just disappearing into China and Mexico, they’re disappearing literally into the waiting “arms” of the Gizmo 9870B robot; and, if demand doesn’t increase above the rather paltry level noted above, then all the credit rate drops in the world won’t keep already overburdened consumers from “softening their demand.” 

Wait. Watch.

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