Although the manufacturing sector in Arkansas and the rest of the U.S. has been mired in a recent slump, a new report from Oxford Economics says U.S. productivity from the blue collar-friendly segment of the economy is still the strongest in the world and will maintain its competitive edge over China and other economies.
“Although US manufacturing is currently facing meaningful headwinds from a stronger dollar and the collapse in investment in the shale energy sector, it remains the most competitive worldwide,” noted Gregory Daco, head of U.S. macroeconomics at the closely watched global research group.
The Oxford Economics report was released on Monday, ahead of the Federal Open Market Committee’s two-day meeting to consider adjustments to the nation’s hawkish monetary and interest rate policy. The United Kingdom-based economics research firm has offices in London, New York, Washington, D.C., Chicago, Singapore, Paris, Dubai and other locations across the world.
ARKANSAS MANUFACTURING REALITY
The analysis by Oxford’s Daco is notable given the Fed’s recent focus on the U.S. job market growth and the fact that employment in Arkansas’ manufacturing sector has shrunk significantly since the Great Recession, losing 14% of the state’s industrial jobs between September 2007 and September 2013 – with a blip of a slight gain of 645 jobs between that period and the end of 2014.
Between January 2015 and September 2015, Arkansas shed another 1,354 industrial jobs, continuing the near-decade long, post-recession slump that has shrunk the number of factory-related jobs to levels not seen since former U.S. President Bill Clinton was governor of Arkansas.
And although the state’s overall labor market has strengthened in the past year with the jobless rate falling to 4.4% on Tuesday, just two-tenths of a percentage point off the all-time low of 4.2% touched several times in 2000, the manufacturing and mining sectors have not been a part of that recovery.
Statewide, the number of manufacturing jobs has never fallen below 150,000 since the federal government began using the North American Industry Classification System, or NAICS, to classify and uniformly compare data from the different sectors of the growing U.S. economy in 1990. After topping out at nearly 250,000 payroll jobs in April 1995, the state’s once largest job-producing sector has lost nearly 100,000 jobs in just 20 years. Today, there are 154,400 manufacturing jobs in Arkansas, down 700 workers or 1.5% from a year ago.
U.S. MANUFACTURING PRODUCTIVITY OUTPACES WORLD
Although the Oxford Economics report highlights the fact that rapid and broad-based 20% currency appreciation since mid-2014 has done some significant damage to American manufacturing competitiveness, it argues that three main factors have mitigated “the hit” from the stronger U.S. dollar.
“The greenback was arguably the most competitive it has ever been before the surge, U.S. manufacturing productivity is the strongest in the world, and the U.S. is ‘gifted’ with a stable regulatory framework, a flexible labor market, low energy costs and access to a large domestic market,” said Daco, Oxford’s leading economist and one of the nation’s top macroeconomic forecasters.
Concerning U.S. productivity, Daco said U.S. industrial output has outpaced most other global rivals with manufacturing production per employee rising about 40%, or about 2.5% annually. By comparison, Germany and the United Kingdom have seen 25% and 30% productivity growth, respectively, over the same period.
While U.S. productivity growth has lagged that of Japan, the nation’s manufacturing sector remains 25% more productive, the report states. Likewise, while productivity has doubled in India and China, the U.S. manufacturing sector remains 80-90% more productive.
OTHER MANUFACTURING NOTES
Following are other key points in the Oxford Economics report.
• Most advanced economies have seen similar compensation growth over the past 13 years, but stronger productivity in the U.S.. has allowed it to maintain generally lower unit labor costs. Since wage growth in China has largely outpaced productivity growth, and the renminbi has strengthened, China’s unit labor costs are now only 4% lower than in the U.S.
• While there is growing evidence of reshoring, especially in the most competitive and export-intensive U.S. manufacturing sectors, Mexico appears to offer a sensible “near-shoring” alternative with costs 10% lower than in China, a stable regulatory environment and generally unhindered access to the U.S. market.
• In the baseline forecast, the U.S. dollar will appreciate another 3-5% through 2017 before gradually depreciating thereafter. In this environment, the U.S. manufacturing sector will maintain its edge. Another 20% appreciation of the dollar, on the other hand, would certainly dent U.S. competitiveness, and once again make China an attractive production hub, as well as giving Japanese manufacturers a significant advantage over U.S. firms.