15 September 2009

Manufacturing Faces Competition

This article is excerpted from the book Outline of the U.S. Economy, published by the Bureau of International Information Programs. View the entire book (PDF, 3.26 MB).

Manufacturing’s share of the U.S. economy peaked in the 1950s, when Europe and Asia were still struggling to recover from the devastation of World War II. By 1980, Japan and Western Europe were ready to challenge U.S. industrial leadership, and in the new century they have been joined by China, India, and many other nations around the globe.

American producers have responded to rising competition and higher labor and benefits costs by moving operations offshore, purchasing foreign parts and components, and concentrating on higher-value products where innovation offers a competitive advantage. Only 10 percent of the U.S. workforce holds manufacturing jobs today, down from 20 percent plus in 1980.

Even so, high U.S. worker productivity and technological leadership enabled the United States to rank as the world’s leading manufacturer in 2006, with $1.5 trillion in products in 2006, or about one-quarter of total worldwide production. “Standing by itself, U.S. manufacturing would be the eighth largest economy in the world,” the U.S. Manufacturing Institute has said. U.S. manufacturers employ more than 14 million workers, and another 6 million work in related industries. According to the institute’s 2006 report, manufacturing jobs pay about 25 percent more in wages and benefits than nonmanufacturing jobs in the United States. The country’s manufacturers produced more growth and more productivity gains between 2001 and 2005 than any other sector of the U.S. economy.

Five manufacturing groups had more than $1 billion each in sales in 2006: fabricated metal parts, a key product for the construction industry; machinery; computers and electronic equipment; motor vehicles; and food and beverages. U.S. manufacturing output that year included 4,500 civil aircraft, 11 million cars and light trucks, 87 million metric tons of raw steel, 27 million computers, $127 billion worth of pharmaceutical preparations (excluding biological products), and $120.6 billion in semiconductors and electronic components.

Retail businesses contributed about 6 percent to 2006 economic output. Wholesale businesses, which buy from producers and then supply retailers, added another 5 percent. Together, these sectors produced about $1.6 trillion for the U.S. economy, and their share of the total in 2006 was slightly less than in 1980.

The retail sector’s makeup illustrates the great diversity of stores in the American economy. More than 95 percent of all retailers are single-store business, the traditional “mom-and-pop” operations that populate America’s Main Streets.

But revenues taken in by single-store businesses account for only half of all retail sales. In the sprawling malls and shopping centers on the outskirts of U.S. cities are the “big-box” retail stores and “super-center” warehouses that compete for consumers’ dollars through relentless price competition. The largest of these major retailers, Wal-Mart, seemed to be everywhere, with 4,100 U.S. stores and 3,100 stores abroad.

Amazon.com, which ranked No. 32 in retailing revenues in 2007, had no stores—all of its sales are made on-line. The company is by far the most durable survivor of the 1990s dot.com retailing boom. The shifts in rankings of leading U.S. retailers each year show evidence of the constant struggle among large stores to win and hold the loyalty of U.S. consumers.