In his State of the Union address, President Obama said “If you’re an American manufacturer, you should get a bigger tax cut. If you’re a high-tech manufacturer, we should double the tax deduction you get for making products here.” A Republican presidential candidate has gone even further by promising to eliminate all corporate taxes for U.S. manufacturing companies if elected president. With their policy prescriptions, both politicians seem to be perpetuating the myth that American manufacturing is a feeble sector in such a perpetual state of decline that it requires some kind of taxpayer help to survive. But the facts show something much different—a U.S. manufacturing sector that has made a remarkable comeback over the last few years and is now the economy’s “shining star” in an otherwise sub-par recovery. For example:
1. U.S. manufacturing corporations are on track to earn record profits in 2011, of about $600 billion based on data available from the U.S. Census through the third quarter (see chart above). That’s an increase of 22 percent from 2010, and more than four times the 4.8 percent increase in profits for all U.S. corporations in 2011. It’s also double the $300 billion of manufacturing profits in 2009 and almost 15 percent higher than the previous record of $525 billion in 2006.
2. While the overall economy (real GDP) grew by only 1.7 percent in 2011, the manufacturing component of U.S. industrial production grew at more than twice that rate (4.0 percent). And manufacturing output in the Midwest “rust-belt” region of the country grew by an incredible 8.4 percent last year, suggesting that the traditional manufacturing heartland of America is leading the industrial comeback.
3. Over the most recent 12-month period from January 2011 to January 2012, manufacturing employment grew by more than 2 percent, compared to a less than 1.5 percent growth in total payroll employment over that same period.
4. For the last eight consecutive months starting in June 2011, the jobless rate for the manufacturing sector has been below the national average, and is currently at 8.4 percent, or almost a full half-point below the U.S. average of 8.8 percent (not seasonally adjusted). There has never before been a comparable period when the jobless rate for manufacturing was below the national average for that many consecutive months since the BLS starting tracking industry unemployment rates in 2000.
Bottom Line: By all relevant measures of economic performance: profits, output, employment growth, and unemployment, American manufacturing is at the forefront of the economic recovery, and doing amazing well without any help from taxpayers. In most cases when industries like major oil and gas are earning record-high profits, politicians are quick to accuse them of reaping “windfall profits,” and proposing windfall profits taxes and even recently the establishment of a “Reasonable Profits Board.” Maybe it’s better that Obama and Santorum didn’t do any fact-checking about America’s booming manufacturing sector that is now experiencing record, and possibly even “windfall,” profits, and doing better than at any time in recent history.