In the first three installments of this series we looked at the aggregate-demand side of the U.S. economy. The overall message is that the economy is in pretty good shape, given the circumstances: the private-sector share of the economy has grown over the past 15 years, consumers buy more durables (such as cars) while maintaing a steady overall level of indebtedness; business investments are increasingly stable at a high rate – and government consumption and investment spending has been declining for a couple of years.
There is no doubt that the economy could do better. In the past three years GDP has been growing at 2.1-2.4 percent per year, adjusted for inflation; a good growth rate this far out of a recession would be 3-3.5 percent. There are two reasons why we are not seeing more growth than we do:
- In the short run, the federal debt and the Obama administration’s affinity for regulations have put a damper on private-sector activity;
- In the long run, the U.S. economy is in the same early stages of industrial poverty that Europe experienced some 20-25 years ago.
Nevertheless, the economy is growing and so is the private sector. This fourth and last installment takes a closer look at the production side of the economy, asking the question: what industries produce the value that adds up to our Gross Domestic Product?
The first thing we note about the value-added analysis of GDP is that the American economy is remarkably stable from a structural viewpoint. The industries that were the backbone of the economy ten years ago remain its backbone today. In 2005,
- The financial industry produced 23.2 percent of the value added in the economy;
- Manufacturing came in second at 15.1 percent;
- Professional and business services contributed 12.7 percent.
Together, these three industries added $5.67 trillion to the economy (in current prices), or 44.2 percent of the entire GDP.
In 2014, the same three sectors, again topping the ranking in the same order, produced a total value of $7.83 trillion, representing almost exactly the same share of GDP.
This is a sign of structural stability, and it is worth noting that manufacturing – the death of which is so often declared – continues to grow. From 2005 (the earliest year with consistent value-added GDP data) through the third quarter of 2014, American manufacturing grew by an average of 2.4 percent per year (again in current prices). Admittedly, this is not exceptional; most other industries have seen stronger growth. But it is a higher growth rate than, e.g., manufacturing in Europe.
If we look at value-added per employee, manufacturing looks even better. For the same 2005-2014 period, per-employee value added grew by 4.2 percent per year:
- In 2005 the average manufacturing worker produced a total value of $119,800;
- In 2009, right in the middle of the Great Recession, he produced a total value of $145,900; and
- In 2014 (annual value based on the first three quarters) the value added per employee was $171,200.
The number of employees in manufacturing has gone down over the past ten years, from 14.2 million in 2005 to 12.2 million last year. On the upside, there are 700,000 more manufacturing workers in America today than there was in 2009 and 2010, the bottom of the Great Recession.
In other words, manufacturing is on the rebound in America.
The leading industry of our economy, the financial sector, is even healthier – at least judging from the value it produces. (Let us keep in mind that this is the market value of their services, not the investments they make.) Per employee, the financial sector produced a value of…
- $322,200 in 2005;
- $366,700 in 2009; and
- $440,200 in 2014.
During the same period of time, the financial industry has increased its value added to GDP by $1 trillion in current prices, from $2.5 trillion in 2005 to $3.5 trillion in 2014.
On the job-creation side, though, the financial industry seems to suffer from the same reluctance that is holding back manufacturing. In 2005 there were almost 8.2 million people working in the financial industry; in 2014 that same number was 147,000 people lower. That said, since its recession bottom of 7,678,000 employees the industry has regained 318,000 jobs.
There is one more sector that deserves a note. Of all the major industries, mining produces the highest per-employee value: $528,000 in 2014. Furthermore, with a value-added increase of more than ten percent per year and a job growth of 4.2 percent annually, mining strongly contributes to our economic recovery.
To sum up, there is growth almost in every corner of our economy. It is a ho-hum recovery, but it remains relatively steady and it has no doubt replaced the recession as the “norm” of the economy. This is good, but things can get better. While it is unrealistic to expect stellar growth rates for the United States when both China, Europe and Japan are in recession mode, at the very least we can squeeze another percent in annual growth out of the economy.
How could we that happen? Well, that is the question for another day. For now, relax and enjoy the ride.