
Apr 2, 2018
“The Surprising Key To Keeping The U.S. Expansion Going: Manufacturing Innovation” By Marco Annunziata, Forbes The current U.S. economic expansion is already one of the longest on record—it turned 104 (months) in February. The manufacturing sector holds the key to making it the longest. Manufacturing is currently seen as unglamorous, unloved, needing protection just to survive. I believe this view is profoundly misguided, and that it is in manufacturing that we will see the most powerful growth-enhancing technological transformation ahead. The U.S. economy has picked up speed, and the global economy with it. The IMF recently noted that we are enjoying the most broad-based synchronized upswing since 2010. The U.S. labor market keeps expanding at a robust pace and has created over 17 million jobs since the recovery started; the unemployment rate holds at a very low 4.1%, and strong economic activity keeps attracting more people into the labor force. Wage growth remains muted, however, with average hourly wages increasing at a modest 2.6% pace in the last twelve months. This is a problem. Stronger wage growth would give better support to household consumption, and it would make it easier to reduce income inequalities. Slow wage growth is disappointing, but it should not be too surprising. True, a tighter labor market should boost wages—I believe that it will, and that in the coming months we will see more robust wage pressures. But sustainable strong wage growth depends on productivity. Only when productivity rises at a robust pace can workers enjoy faster wage increases without compromising their firms’ competitiveness and market position. Productivity growth has been dismal of late. In the decade prior to the financial crisis, 1996-2005, U.S. labor productivity rose at an average pace of 3% per year. During the recovery, 2011-2017, it averaged a measly 0.7%–over four times slower. Most other advanced economies have suffered a similar fate. What I find most worrying is that manufacturing sector productivity has suffered an even more severe slowdown: from 4.8% to 0.3% a year. From the early 1990s to the onset of the global financial crisis, productivity growth in manufacturing outpaced the rest of the economy by a significant margin; now it is lagging behind....