Manufacturing employs fewer Americans than it once did, but its contractions still reveal where the economy and your company may be heading next.
EXPERT OPINION BY SOREN KAPLAN, WSJ BESTSELLING AUTHOR, KEYNOTE SPEAKER, AND LEADERSHIP STRATEGY ADVISOR
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A new Federal Reserve analysis by economist Ryan Decker suggests there’s a fundamental problem in how we measure manufacturing’s role in the larger economy.
Manufacturing looks like a shrinking part of the U.S. economy. Its share of private-sector employment has fallen from roughly 35 percent in the 1950s to less than 10 percent today. Since the 2008 financial crisis, industrial production has barely grown while the broader economy has continued expanding significantly.
And this same problem might be happening in your company right now: What if the best signal of where your business is headed comes from something you’ve learned to mostly ignore?
Manufacturing Is Bigger Than the Factory
Traditional measures look at manufacturing employment and factory output. But the economic value associated with a product extends much further.
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Think R&D, design, packaging, transportation, retail, customer support, and all the other activities required to get a physical product into a customer’s hands.
Decker’s Federal Reserve analysis uses a broader measure called “goods GDP,” which captures the full value embedded in physical goods. When you consider the bigger picture, manufactured goods still account for about one-quarter of the U.S. economy.
The more interesting finding appears when the economy contracts.