High-Tech Distorts Manufacturing Trends

Inflation-Adjusted Manufacturing Has Kept Up With the Overall Economy

Manufacturing is often compared with agriculture in terms of a slow decline in the share of employment and national output; however, after adjusting for price changes, the quantity of manufacturing value-added (GDP) generally kept pace with the overall economy between 1977 and 2013, taking into account both recessions and expansions. Manufacturing’s inflation-adjusted GDP falls faster during recessions (as in the 2008-2009 recession) but grows faster in expansions and eventually catches up. Measured in physical volume, manufacturing’s share of the economy has been relatively unchanged since 1977.

Inflation-adjusted manufacturing growth is not, however, widespread within the sector’s industries; for example, computer and electronic products account for a disproportionately large share. The geometric rise in semiconductor processing speed in the price adjustment translates into extremely strong growth in the physical volume of the industry’s value-added in the computer, semiconductor, and communications equipment industries.

There is no denying that computer and electronic products have provided great value in the economy through the consumer electronics, industrial automation, and information-driven service industries. The rapid decline in these products’ prices, though, creates a measurement conundrum. When manufacturing value-added is measured in current dollars, without a price change adjustment, the sector has dramatically shrunk as a share of the economy. Manufacturing value-added made up 12% of total GDP in 2013, down substantially from 21.6% in 1977.