One swallow doesn't make a summer -- and one month's
surge in U.S. industrial demand doesn't make an
American manufacturing renaissance.
The Institute for Supply Management announced last
Monday that its widely watched new orders index soared
last month to its highest level in nearly twenty
years. This is good news but it is hardly cause for
anyone to break out the champagne.
To be sure, the news helped share prices finish at
their highest level in eighteen months. But it is
important to realize what this index does NOT measure.
All Wall Street's euphoria to the contrary, the index
does not measure the absolute level of manufacturing
activity. As its name implies, it merely measures the
inflow of new orders. So yes, the November surge is a
harbinger of much higher manufacturing activity in the
weeks ahead -- but higher merely compared to the
abysmal levels America has gotten used to in recent
What the index is emphatically not saying is that
America has returned to 1983 levels of manufacturing
prowess. Far from it. In reality on key measures
American manufacturing is much reduced compared to
twenty years ago.
One such measure is jobs. As of October the number of
Americans employed in manufacturing had fallen to a
mere 14.5 million. This represented a decline of 27
percent compared to the 1983 total of 19.9 million.
The huge decline in manufacturing employment is all
the more striking for the fact that employment in
non-manufacturing activities has generally soared in
the last two decades. Thus manufacturing workers now
represent a mere 10.5 percent of the total American
employed workforce, compared to 19.8 percent in 1983.
Does this matter? Actually yes -- crucially. For one
thing the precipitate loss of manufacturing jobs has
greatly contributed to the widening income gap in
American society in recent years. The point is that
manufacturing jobs pay far better than most of the
service jobs available to redundant manufacturing
For more than a decade now successive Washington
administrations have largely ignored the America's
manufacturing decline and the consequential layoffs.
But the problems cannot be swept under the carpet
forever. For one thing, the problems in American
manufacturing have been closely associated with a
rapidly deteriorating trend in U.S trade figures. With
much of America's once world-beating manufacturing
base now shuttered, the U.S. is importing on an ever
larger scale. So much so that the deficit in the U.S.
current account (the widest and most meaningful
measure of trade) is likely to exceed $510 billion
this year. This would be more than eleven times the
$46 billion deficit of 1983.
This presages a dramatic reduction in American
economic power, as a growing group of concerned
American opinion leaders has been pointing out. Both
the MIT economist Lester Thurow and the plutocratic
investor Warren Buffett have recently suggested that
the trade deficits are setting the United States up
for a devastating currency crisis. On Thurow's figures
the crisis could at a stroke cut the dollar's value by
half -- and the resulting dislocation to international
trade would throw the entire global economy into a
For President Bush, an even more compelling wake-up
call has come from his father's old colleague, Henry
Kissinger. Earlier this year Kissinger reportedly
commented that a nation without manufacturing cannot
hope to remain a major power for long. That is quite a
statement coming from the ultimate aficionado of power
A Tokyo-based former editor for Forbes and the
Financial Times, Eamonn Fingleton is the author most
recently of Unsustainable: How Economic Dogma Is
Destroying American Prosperity (Nation Books, 2003).