In late July 2022, the U.S. Bureau of Economic Analysis released the advanced Q2 gross domestic product (GDP) numbers, which showed the U.S. economy contracted at an annualized rate of 0.9%. While this was an improvement from the 1.6% annualized contraction recorded in Q1, it set off alarm bells, as two quarters of GDP contraction is the typical indicator that the economy is in recession. Diving below the headline numbers, there are mixed messages about the overall health of the U.S. economy. Some economists have pointed out that the current reading more reflects supply-side challenges than a reduction in demand, which typically triggers a recession. While that may be reassuring to some, an economy affected by supply constraints can be just as painful as one suffering from a demand-driven downturn.
Further complicating the overall economic assessment is the unusually strong labor market. Unlike most other recessionary periods throughout history, the job market remains uncharacteristically active given the declining GDP. There are roughly two jobs available for every person unemployed and currently seeking work. Of these available jobs, a higher percentage of the openings are in the manufacturing sector than the average of the period between the end of the 2001 recession and the beginning of the COVID-19 recession. This article will examine the current state of manufacturing employment, some historical trends, and how manufacturing employment responds to recessions.
Are We in the Midst of a Trend Reversal?
Total employment in manufacturing reached its peak in June 1979. Since then, six recessions have afflicted the U.S. economy, and in the first five, manufacturing employment never recovered to the pre-recession level. The exception is the most recent COVID-19 recession. Prior to that, manufacturing employment had turned a corner, adding employees at a pace not seen in a generation. The end of the Great Recession to the onset of COVID-19 saw the fastest rate of growth since the expansion beginning in March of 1975 that brought employment to its peak. Since 2001, manufacturing jobs make up typically 6.6% of all job openings in the United States. Since the end of the COVID-19 recession, manufacturing job openings have averaged 7.6% of all openings.
Although the absolute number of people employed in manufacturing declined in the expansionary period between the 2001 and 2008 recessions, the number of job openings in manufacturing grew at a faster pace than all other non-farm job openings for the first 12 months after the trough. In the period following a recession, the growth rate of job openings is arguably more important to people who have become unemployed than the absolute level of employment, as it represents the availability of jobs. During the expansion beginning at the end of the 2008 financial crisis, manufacturing job openings grew faster than all other non-farm jobs, more than doubling 13 months after the end of the recession and tripling in less than three years. As of the writing of this article, there are almost two-and-a-half times as many manufacturing job openings as the monthly average dating back to 2001. Despite the lackluster GDP numbers of the last two quarters, manufacturing employment opportunities are available and in much higher quantity than during any of the last two economic expansions.
The Future Looks Bright
It cannot be understated how different the COVID-19 recession was from any previous one. Likewise, the expansion period that followed was unlike many others because of the massive shift in demand from services to manufactured goods and the subsequent supply issues. It would stand to reason that should the economy fall into recession, the manufacturing sector may emerge in a better position than it started for the first time in a generation. Efforts to create shorter and more redundant supply chains have brought about a unique opportunity for manufacturing to not only meet domestic demand but to meet demand across the globe with the massive capacity built over the past two years. Whether or not the United States is currently in recession is yet to be determined, but what is certain is experience in manufacturing will prove to be an invaluable skill in our new economy.
If you have any questions about this information, please contact Chris at cchidzik@AMTonline.org.