Macroeconomics

Manufacturing industries hurry up toward Advanced Manufacturing.

By Catherine De Las Salas

By Catherine De Las Salas

Any time Economists learn facts about manufacturing industries, they conclude that the sector is contracting either at slower or faster pace. In fact, Economists focus too much on the speed of a long trend of economic specialization shared by developed countries. However, the news about manufacturing stem not from the speed of its own decline. Indeed, the focus on manufacturing should be on how fast or slow the sector transitions towards advanced manufacturing industries. Qualitative data released on June 25th 2015 give a hint on what to look at when surveying manufacturing companies. The following two statements unfold an important phase within manufacturing at which economist should be paying attention to:

  1. “Technology continues to improve our efficiency on the shop floor, equipment and machinery.” (Source).
  2. “We are turning to greater automation because of price pressures. 3D printers are becoming more powerful and less expensive. We will increase our use of that technology for our prototyping efforts.” (Source).

Those two comments were included in the Federal Reserve Bank of Kansas monthly survey on manufacturing released on June 25th 2015. These comments unveiled evidence about the “medium term” changes within the sector. Manufacturing industries hurry up toward improvements that allow them to compete efficiently against cheap labor overseas. Improvements in technology, new materials and new processes might be at the core of the sector’s concerns.

As the survey stands currently, it looks comprehensibly at production levels by measuring volume of shipments, volume of orders, and volume of inventories. The survey also works out well for unveiling employment levels by tracking the number of employees in factories as well as the average employee workweek. Insights on raw material prices and capital investments are detailed in every version of the survey. All of that measurement system is excellent and analytically useful. However, the indexes track no information about innovation of processes nor innovation of products within the sector. Perhaps, patents equipment replacement and investment in research and development may help economist understand not only the economic contraction of the sector, but also an eventual transition toward a stage of “advanced manufacturing”.

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