Facts About
Modern Manufacturing
Manufacturing Improves Living Standards
Manufacturing has substantially increased Americans’ standard of living. Strong productivity gains, rapid advances in innovation, and international competition have led to a long period of deflation in manufactured goods, caused primarily by the dramatic improvement in the quality of semiconductors and a corresponding reduction in prices of electronics. Between 1995 and 2013, manufacturing prices rose 6% as the overall price level increased by 42%. Inflation in manufacturing excluding computer and electronic products, however, increased 46% during that period.
Americans have long benefited from the trend of lower prices for computer and electronic products. For example, prices for these goods were 88% lower in 2013 than in 1995, with prices declining 11% annually. High-tech manufacturing thus provides consumers with more goods for fewer financial resources, allowing Americans to spend more on other items.
Massive deflation in computer and electronic products also explains why manufacturing’s share of GDP falls over time. The value of the industry’s output is the price of manufactured goods multiplied by the physical quantity of goods manufactured. Although the physical units of all manufactured goods have increased at about the same rate as overall GDP, dollar prices of the goods have not kept pace with overall inflation, so mathematically, manufacturers’ share of the total economy must fall.