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US President Barack Obama at a tour of a factory in Iowa. Photo: AFP

Factories in the United States still to recover, six years after recession

WASHPOST

It took less than a year for America's factory output to rebound from the 1991 recession. It took 3-1/2 years to bounce back from the 2001 recession. Now, six years clear of the Great Recession, manufacturing output still has not returned to the pre-crisis levels it reached in 2007, according to revised economic data from the US Federal Reserve.

The downward revisions highlight the persistent weakness in a sector that President Barack Obama has long called crucial to the health of the US economy and the fate of the middle class. They track with the ongoing poor employment numbers for manufacturing, which, since January 2013, has added fewer than half of the million jobs Obama promised the sector would create in his second term.

And they reflect a hit that wasdeeper than previously thought to defence and aerospace manufacturing as the result of Pentagon cuts and deficit-reduction measures Obama and Congress agreed to several years ago.

The revised data show manufacturing output grew by nearly two percentage points less than previously estimated in both 2012 and 2013, and by nearly one point less in 2014.

Output in defence and space equipment was revised even more dramatically downward: by four points in 2012, seven points in 2013 and 2.5 points in 2014. That coincides with the implementation of a series of curbs to the federal defence budget, including ones agreed to in a 2011 budget deal.

"You can clearly see the steep declines in defence and space equipment spending" in the revised data, said Chad Moutray, the chief economist at the National Association of Manufacturers. A coming next wave of scheduled cuts, he added, "will have even larger impacts on manufacturers, as subsequent cuts will dig deeper into the meat of key programmes".

Defence cuts only explain some of manufacturing's historic sluggishness in this recovery. As Moutray notes, the economy has grown relatively slowly for the years following a recession. And as many other economists note, the United States is continuing to run a large trade deficit in manufacturing, an apparent result of a strong American dollar and weakened currencies in trading-partner nations such as Japan and China.

The large trade deficit "has to be a sign that imports have been denying domestic manufacturing many growth opportunities at home", said Alan Tonelson, who writes about trade and currency issues on his Reality Check blog, "and in the meantime, US-based manufacturers haven't been able to offset those losses with gains in foreign markets".

Economists at the liberal Economic Policy Institute wrote in a research paper this week that growing trade deficits and declining factory output were directly responsible for five million lost American manufacturing jobs over the past 15 years.

"A rising trade deficit indicates that US manufacturers are losing business to manufacturing industries in other countries like China and Japan," authors Will Kimball and Susan Balding wrote, "who manipulate their currency to make their goods cheaper and therefore more appealing to consumers in the United States and elsewhere. This leads to reduced demand for goods produced by US manufacturers, both at home and abroad".

Obama, meanwhile, continues to press the factory sector as a centrepiece of his economic agenda, though he opposed congressional efforts to add currency-related provisions to a recently passed bill that gave him more power to negotiate trade deals. Just this week, Treasury Secretary Jack Lew travelled to North Carolina to highlight what a press release called "the Obama Administration's commitment to fostering economic growth through innovation and manufacturing".

This article appeared in the South China Morning Post print edition as: US factories yet to recover, 6 years after recession
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