Jan. 17, 2018

U.S. Hits New Peak in Industrial Production

Lost amid the other good news involving the manufacturing sector is the revelation the United States has reached a new peak in industrial production. Michael Hicks, a Ball State University economist and director of the university’s Center for Business and Economic Research, says the economy reached this new peak in December.

IP initially peaked in 2007, before the economic crisis reduced production by nearly 15 percent through the trough in 2009. A second peak was reached in 2015, before productivity again dipped.

“Other measures tell the same story. Inflation-adjusted manufacturing GDP will peak in fourth-quarter 2017, both in dollar and quantity index measures,” Hicks says. “Importantly, new data on value-added of manufacturing offers an even more interesting insight into America’s manufacturing strength.

The value-added calculation is a measure of production that subtracts all the goods used in the process. By employing this across all U.S. manufacturing, it omits the spending by factories on imported parts. “That number is at a record high right now, a full decade after the start of the Great Recession,” Hicks says.

Better yet, Hicks doesn’t see any signs that the trend will be reversing itself soon, nor is there any reason to think there’s a cap to productivity growth. “There’s nothing signaling we’re going to be derailed. There is constant change in demand for goods, but I don’t think there’s anything out there that generally argues that there’s going to be a change,” he says.

For context, over the past 40 years, the productivity level of the U.S. manufacturing sector has more than doubled, Hicks says.


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Thursday, February 22, 2018