According to the National Bureau of Economic Research, and independent group of economists, the Great Recession ended in June 2009. It was the longest and deepest downturn for the U. S. economy since the Great Depression. Some 20 months later, the average American would be inclined to dispute this opinion based on the lack of job opportunities. What is the reality?
The January 2011 “Report on Business,” by the Institute for Supply Management stated that the manufacturing sector expanded for the 18th consecutive month. Norbert J. Orwe, CPSM, chair of the Manufacturing Business Survey Committee said, “The manufacturing sector grew at a faster rate in January as the PMI registered 60.8 percent, which is its highest level since May 2004 when the index registered 61.4 percent…New orders and production continue to be strong, and employment rose above 60 percent for the first time since May 2004.” This wasn’t just an upturn in a few industries – 14 of the 18 manufacturing industries reported growth in the PMI in January.
The PMI is the Purchasing Management Index, based on data compiled from purchasing and supply executives nationwide. A PMI reading above 50% indicates that the manufacturing economy is expanding and below 50% indicates that it is declining. At the very worst of the Great Recession, it was 32.5% in December of 2008. Lakshman Achuthan, managing director of Economic Cycle Research Institute said, “Gross domestic product has recovered about 70% of its pre-recession level.”
While the national unemployment rate finally dropped to 9.0% in January from 9.4% in December, many experts realize that this is because thousands of men and women dropped off the unemployment rolls when the last of the extensions of up to 99 months ended in December. The U6 unemployment rate that takes into account the people that have lost their unemployment benefits or taken part-time jobs while seeking full-time employment is 16.1%. This reflects the growing difficulty of increasing jobs of any type in today’s competitive global economy.
Gregory Tassey, Sr. Economist at the National Institute of Standards and Technology commented in a paper titled Rationales and Mechanisms for Revitalizing U. S. Manufacturing R&D Strategies, “For the first seven recessions after World War II, the relatively closed status of the U. S. economy meant that average employment recovery was swift and substantial (about four months to positive employment levels relative to the recession trough). In the late 1980s, however, the growing global competition began to promote greater investment in addition to accelerated outsourcing. The result was the 19 months elapsed before a positive employment level was attained. This significant slowing of the cyclical rebound in employment was dwarfed by the extremely slow recovery in employment from the 2000-2001 recession, which required 30 months to reach a positive employment level relative to the recession trough.”
Why have the last two recessions resulted in “jobless recoveries?” What is keeping unemployment so high now? One of the main reasons is the loss of manufacturing jobs. Too many manufacturers are sourcing all or most of their manufacturing offshore. An upturn in their business doesn’t mean more manufacturing jobs for Americans if they aren’t producing or buying everything for their products in the United States. Since 2001, we have lost 63% of the U. S. textile industry and 74% of the U. S. printed circuit board industry. We have lost 47% of communication equipment jobs and 43% of motor vehicle and parts industry jobs.
Since manufacturing jobs create three to four other jobs, the loss of each manufacturing job causes the loss of three to four other jobs. Our nationwide loss of jobs in all sectors won’t reverse until we stop the hemorrhaging of manufacturing jobs out of the United States.
In addition, manufacturers are doing more with less for three main reasons. First, the United States ranks highest in productivity as measured by Gross Domestic Product per employed person at 97.1 compared to China’s rate of 10.2 and India’s rate of 7.5. James Vitak, a spokesman for specialty chemical maker Ashland Inc. said, “You can add more capability, but it doesn’t mean you necessarily have to hire hundreds of people.”
Second, an increasing number of manufacturers are adopting “lean manufacturing” based on the principle of continual improvement (Kaizen) of the Toyota Production System. The “lean manufacturing process was developed to produce smaller batch sizes and just-in-time delivery; that is, producing only necessary units in necessary quantities at precisely the right time. This results in reducing inventory, increasing productivity, and significantly reducing costs. It has evolved into a system-wide management process that continually seeks to increase profits by stripping out wasted time, material, and manpower from the manufacturing process. Thus, fewer people are needed to produce products. Manufacturers aren’t building up inventory to fill orders – they are ordering materials, components, parts, and assemblies as needed to fill orders as they receive them from their customers.
Third, existing salaried employees have been required to work harder and longer because manufacturers are fearful of hiring new people until they have more confidence that the upturn in business will continue, and we won’t have a double dip recession. Manufacturers can get away with doing this because for every person employed, there are a hundred people willing to fill the job.
The fear of increased taxes with the expiration of the Bush tax cuts, the cost of changes due to the Health Care Act of 2010, and the possibility of a “cap and trade” bill added to the uncertainty about the economy for all businesses last year. Passage of the bill that maintained the current tax rates without an increase just before the end of the year reduced fears somewhat, but the other two issues are still causing uncertainty about the future.
The number of manufacturing jobs is a better indicator of what’s really happening in the economy than the stock market. Many of the companies on the Dow and Standard & Poor indexes of the stock exchange are no longer American-owned companies. They are multinational globalist companies that don’t care about providing jobs for Americans. They care about their bottom line of making as big a profit as possible. These companies may be doing well based on their worldwide business and could post profits and have their stock prices go up without creating jobs for American workers and benefiting the U. S. economy as a whole.
I keep hearing that we won’t create enough jobs to lower the unemployment rate until consumer confidence is restored and consumer spending increases. I disagree. Consumer spending doesn’t create American jobs when most of the goods consumers buy are now made in offshore. We won’t be able to create the jobs we need to lower the unemployment rate until business owners and consumers start “connecting the dots.” We don’t create American jobs when companies outsource their manufacturing to other countries and consumers buy products made offshore. To create jobs in America, we need to manufacture in America and then buy products made in America.