The National Association of Manufacturers’ (NAM) annual Labor Day report, released on Monday, shows that while manufacturing production increased at its fastest pace in six years and jobs on the factory floors have posted their strongest gains since 1998, soaring energy costs are hurting workers at the pump and in their paychecks.
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“The report provides a snapshot of the U.S. economic performance over the past year,” John Engler, president and CEO of NAM, told reporters at a press conference announcing this year’s findings. “I think you are going to be struck by quite a few of the findings, including some good news for manufacturers and workers in manufacturing. The report also reveals and reaffirms a disturbing trend, one that has serious implications for American manufacturers and our workforce, as well as the American economy. That’s the soaring cost of energy."
Double-digit growth in computer and electronic products, primary metals, aerospace and electrical equipment production lead overall manufacturing output to a 5.8 percent increase over the previous year. This is the fastest four-quarter increase in manufacturing production in six years and is 66 percent faster than the Gross Domestic Product (GDP) growth. Manufacturing productivity has also surged 22 percent, more than one-third faster than the average increase during previous recoveries.
The 3.8 percent growth in manufacturing productivity and 5.8 percent rise in output over the past four quarters has resulted in expanding employment. Production employment over the last 12 months has increased by 170,000, the largest number of job created over a 12-month period in eight years. The overall increase in the number of jobs rests on 225,000 jobs being created in 11 of the 22 major manufacturing industries, while only 55,000 jobs were lost in the other 11 industries. Job creation has primarily occurred in four industries: computers and electronic products, transportation (excluding motor vehicles), fabricated metals and machinery. Job loss has also been concentrated in four industries, including textile mills, paper products, apparel and textile products. Interestingly, the sectors responsible for job creation also account for a quarter of the U.S. total exports and produce the bulk of equipment purchased by U.S. businesses.
A new dichotomy between production and non-production workers has developed over the last year as well. The rebound in employment has mainly been on the factory floor. Non-production employment has continued to decline, falling 153,000 this past year. Consolidation, efficiency gains and outsourcing are among the many likely reasons for the decline, when combined with the fact that the government only counts employees at establishments that actually produce products as manufacturing employees.
“Over the past year, energy prices have risen 23 percent due to increased global demand, limited domestic supplies, natural disasters and global instability,” Engler said. “As a result, real wages have fallen by 0.5 percent over the past year, when they should have gone up by 1.2 percent.”
David Huether, NAM’s chief economist agrees, saying, “Healthy productivity growth, combined with a tightening labor market, has continued to boost workers’ real, inflation adjusted wages.
“But while workers’ total compensation has continued to outpace inflation, wages have not. Surging energy prices have propelled inflation at a faster pace than workers’ take-home pay and have resulted in declines in real wages for working Americans,” Huether concludes.
Historically, worker productivity has been closely connected with pay, therefore the current growth in productivity should translate into increased real compensation for workers. It has. Real compensation is up more than 6 percent, overall and real compensation among manufacturing workers has increased by 10 percent since the fourth quarter of 2001.
Despite increases in real compensation, wages are not rising. Higher costs for benefits like health care are partially to blame, however surging energy prices are the main reason wages have not kept pace with inflation, according to the report. In fact, the overall consumer price of energy has increased by 80 percent during the current expansion, eating into worker paychecks and reducing real wages. Overall, real hourly wages have fallen 0.6 percent, while real wages among manufacturing workers are down 1.7 percent.
“Rising energy costs are clobbering worker paychecks. Congress and the Administration need to recognize we must act or the cost of energy will continue to impair America’s economic growth, hurt its manufacturing base and shrink employee wages. It’s time for national policymakers to focus not just on demand, but most importantly on a lack of supply. Even after taking into account the expected 32 percent gain in energy efficiency over the next 20 years, U.S. energy production is not expected to keep up with domestic consumption. So if we don’t change direction, our economy will grow more and more dependent on expensive, volatile foreign sources of energy. The U.S. Department of Energy tells us that imports will account for nearly a third of our domestic energy consumption by the year 2025. The NAM is calling for a national debate on a comprehensive, bold, and far-reaching energy strategy. While an energy strategy that focuses on increasing domestic energy production alone will not solve the problem, neither can our country simply conserve our way to energy security.
“The time has come for a bold national energy policy to address these costs,” Engler adds. “A comprehensive strategy that addresses energy supply and demand [….] The need is urgent.”
The report concludes, “As Labor Day 2006 arrives, America’s manufacturers know we know we can cooperate and make our economy less dependant on foreign energy sources and less vulnerable to the negative consequences of energy-induced supply shocks, which have been painfully evident to the American worker over the past year.”