Sunday, February 1, 2009

Does Manufacturing Matter ?

In 1970, U.S. manufacturing represented 28 % of world output, while U.S. GDP was 31 % of world output. After several peaks and valleys over the ensuing decades, by 2007, manufacturing had slumped to just under 20 %, while GDP was at 25 %.

The separation of the two outputs, relative to world production, widened dramatically starting in the mid 1990's. Manufacturing/World Manufacturing relative to GDP/World GDP was at at .894 in 1995, fell to .854 in 2000, and .786 by 2007. This 'gap' in the economy was filled in through financial speculation, grown through the watering of deregulation and easy credit. The most visible aspects of this were the equity and housing bubbles.

It remains to be seen whether the financial sector can rebound and remain durable, in an economy whose manufacturing base is dwindling. Or, if manufacturing needs to be healthy for other parts of the economy to be healthy. I would bet on the latter.

source of statistics

1 comment:

Indian Investor said...

The world has changed a lot since the 1970s. It's a knowledge economy, not a manufacturing economy now.