Unpacking America’s Manufacturing Productivity Slowdown

Written By: Sri Thanabalasingam

Productivity growth in the U.S. has been on a steady decline for the past two decades. Growth in output per worker fell from 2.1% in the 1990s to 1.1% in the 2010 to 2018 period. This decline has been the main reason for the relatively weak pace of economic growth in the decade-long expansion following the Great Recession (Chart 1).

Delving into productivity trends by sector shows that the manufacturing sector was the most important source of this slowdown. Relative to all other sectors, manufacturing experienced the steepest decline in productivity growth. Indeed, after accelerating to 5% annualized growth at the start of the millennium, productivity in the sector slowed to a virtual standstill by 2013. Since then, productivity growth in manufacturing has continued to disappoint, only edging up slightly in 2018 (the most recent year available).

Looking ahead, we don’t expect a major revival in manufacturing productivity. The forces behind the weakness – increased industry concentration, slowing technological change, and global offshoring – appear unlikely to reverse any time soon, suggesting a continuation of the recently observed trend.

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