Industrial Production Fell in November
By SBE Council at 17 December, 2016, 9:37 am
by Raymond J. Keating-
The Federal Reserve provided another sober reminder regarding the state of our economy with the release of November industrial production data on December 14.
Industrial production – which measures the real output of the manufacturing, mining, and electric and gas utilities industries – declined in November by 0.4 percent. That’s the third decline in the last four months, and over the past year, industrial production is down by 0.6 percent. For good measure, the November level of output was down by 2.7 percent from the November 2014 high. Also, industrial output is below the levels reached before the last recession.
The key component of industrial production is manufacturing, and manufacturing output in November was down by 0.1 percent. Indeed, manufacturing production has offered a lackluster story for 2016, with the November level effectively at the same level as January’s, and up by a mere 0.1 percent from a year earlier. Again, compared to November 2014, manufacturing growth was flat last month, while output actually was down by 4.1 percent compared to the high set at the start of this last recession (in December 2007).
It’s important to keep in mind that some have claimed that U.S. manufacturing has been in decline since the late 1970s when manufacturing employment hit is peak. But that’s simply not the case. It’s critical to differentiate between investment and innovation that improves efficiency in manufacturing, and actual lost output. After all, from June 1979 to December 2007, U.S. manufacturing output more than doubled, that is, it increased by 123 percent.
What’s been experienced over the past nine years is diminished manufacturing output, coupled with poor levels of investment (as noted in SBE Council’s Gap Analysis #2: A Lost Decade for Private Investment), and that’s a truly troubling trend.
And as noted in another recent SBEC analysis, manufacturing is a sector dominated by small businesses, the decline of this sector over the past nine years has meant a decline in small manufacturing.
The solution, of course, is not any kind of industrial policy whereby certain politically-favored businesses or sectors get special treatment or subsidies from the government, but instead broad tax and regulatory relief, coupled with trade agreements that reduce barriers to U.S. products. The incoming Trump administration and a new Congress need to reverse course from eight years of increased taxes and hyper-regulation, and instead carry through on pledges to rollback and reform burdensome taxes and regulations.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Keating’s latest book published by SBE Council is titled “Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment” and it is available free on SBE Council’s website here.