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U.S. manufacturing got walloped during the Great Recession. It lost 20% of its output and 15% of its workforce. “That’s second only to the Great Depression of the 1930s, when it lost about half its total output,”says Cliff Waldman,chief economist for the Man- ufacturers Alliance for Productivity and Innovation (MAPI), a manufacturing leadership organization.
And it wasn’t an isolated hit. Waldman and economist Mark Schweitzer, senior vice president at the Cleveland Federal Reserve, both say that the economy was still reeling from the recession of the early 2000s. The United States was just coming out of that recession when the terrorist attacks on the World Trade Center in September 2001 shook the economy again. It still hadn’t recovered when the U.S. housing market began crumbling in 2008. So much trauma in less than a decade sent the U.S. economy spiraling into the Great Recession. Manufacturing capacity utilization fell 8 percentage points during that time, a significant drop.
The manufacturing economy bottomed out in mid-2009. But by the end of that year, things were looking up—manufacturing was recovering faster than the rest of the overall economy. “In fact, it was helping to pull the overall economy out of the bottom of the Great Recession,” says Waldman.
But it wasn’t long before weaknesses in other parts of the world began to take their toll. The financial shock in the U.S. housing sector in 2008 reverberated in Europe and emerging markets beginning in 2009, resulting in the nearly unheard-of event of contraction of the global gross domestic product, not just the U.S. GDP.
Fear shifted from the stability of the U.S. financial system to the stability of the Euro, as the economy of Greece was on the brink of collapse, and worry spread that other countries would follow. And China’s predicted slowdown from more than 10% year-over-year growth was anticipated but still worrisome.
The impact of these global problems: From 2013 through 2016, manufacturing growth slowed to a paltry 0.6%. “That’s a risky situation,” says Waldman, who calls 2.5% to 3% growth healthy. “That’s a pivot point where if we don’t get out of it, this sector could start sliding again.”
While the factory sector still hasn’t recovered from the Great Recession, says Waldman, being 4% to 5% lower than its pre-recession peak, it is showing some rallying signs. Manufacturing employment was up every month from January to April 2017 (it dipped slightly in May) and output grew 2.7% in the first quarter of 2017.
An overall cautious mindset toward expansion among manufacturers since the recession means they’re in a “pretty good position,” in the event of a downturn, says Schweitzer. “We haven’t seen a lot of boom times in manufacturing over the expansion. So there are not a lot of things to significantly pull back on.”
This brings us to some soul-searching. Has U.S. manufacturing fully recovered from the last recession? Are companies in a position to better absorb a down- shift in the economy? Have they learned anything that will help them weather the next storm, real or figurative?
