High-Tech Distorts Manufacturing Trends

Measuring the Quantity of Manufacturing GDP Is Distorted by High-Tech

Manufacturing’s share of GDP since 1977 has either remained relatively unchanged or declined by nearly one-half depending on whether the value-added is inflation-adjusted or in current dollars. The major issue in measuring activity is quantifying the contribution of computer and electronic products. Government statisticians account for the increased quality of these goods over time through lowering the price indicator for the industry. For example, when the processing speed of semiconductors doubles, that is expressed as a 50% decline in industry prices. If the transaction price was unchanged, then the inflation-adjusted output doubles.

Using a logarithmic scale, the value-added of computer and electronic products (in dollars) increased sevenfold from 1977 to 2013. The industry’s value is broken into a 97% decline in price and a 272-fold increase in quantity. Clearly, having a component that increases 272 times will accelerate the growth in total manufacturing value-added (which grew only 2.5 times) at the expense of the pace of the less rapidly growing components.

Manufacturing is in the enviable position of spawning a new super fast–growing industry (when quality-adjusted), but the fact is that computer and electronic products’ value-added in dollars is only 1.5% of total GDP and 12.6% of overall manufacturing value-added. When this segment is removed from the quantity change in total GDP and overall manufacturing, the pace of manufacturing physical volume growth compared with that of the overall economy is substantially different.