MAPI’s Outlook on the
Manufacturing Economy
by
Thomas J. Duesterberg
President and Chief Executive Officer
Manufacturers Alliance/MAPI
to the
Steel Manufacturers Association
Annual Board of Directors Meeting
Longboat Key Club
Longboat Key, Florida
February 13, 2004
About the
Celebrating our 70th anniversary
Over 450 member companies representing well over $2 trillion in annual
sales
Leading economic research organization for manufacturers
Highly acclaimed network of over 1,500 senior executives in 24 functionaloriented Councils which meet twice a year; special topical meetings as
member needs arise
Member-driven research, including benchmarking surveys, management
studies, leading indicators for manufacturing sector, and policy analysis
Just-released book—U.S. Manufacturing: The Engine for Growth in a
Global Economy
U.S. Exports and Imports, 1960-2003
(Percent of GDP)
16
14
12
Imports
10
8
Exports
6
4
2
Source: U.S. Department of Commerce
2002
1999
1996
1993
1990
1987
1984
1981
1978
1975
1972
1969
1966
1963
1960
0
Geographic Distribution of U.S. Exports
and Imports, 1990 and 2002
(Percent of total)
Canada
European Union
Japan
Other Advanced Economies
Total Advanced
Mexico
China
Southeast Asia
Other Developing Economies
Total Developing
Unclassified
Exports
1990
2002
21.1
24.6
26.3
22.0
12.3
7.9
3.4
3.2
63.1
57.6
7.2
14.9
1.2
3.4
9.4
11.1
12.0
7.6
29.9
37.0
7
5.4
Imports
1990 2002
18.1
19.1
20.0
20.6
18.2
11.1
2.4
2.0
58.7
52.7
6.0
12.3
3.1
11.4
15.8
13.8
11.3
4.3
36.1
41.7
5.2
5.6
Source: World Trade Organization (1990) and U.S. Bureau of the Census (2002)
Note: Southeast Asia includes Taiwan, South Korea, Hong Kong, Singapore, Malaysia, Philippines, Thailand, and Indonesia.
U.S. Productivity Growth, 1992-2003
(Percent growth per year)
9
8
7
6
Durable Goods
5
4
3
Manufacturing
2
Overall Business
1
Source: U.S. Department of Labor
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0
Average Annual Manufacturing
Productivity Growth, 1990-2002
(Thousands of employees)
Dollars Per Hour
Average Annual
Percent Change
1990
2002
1990-2002
Reported
31.40
49.90
3.8
Corrected for outsourcing
31.10
47.20
3.5
Sources: Estevão and Lach, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis,
and author’s calculations
Productivity in Developing and
Developed Economies
Levels of GDP per hour worked, 1990-2002, U.S. = 100
1990
1995
1997
1999
2001
2002
100.0
100.0
100.0
100.0
100.0
100.0
European Union
84.8
90.4
89.7
88.1
88.9
86.9
Japan
70.7
73.0
74.3
74.3
74.0
72.5
East Asia (4)
35.6
43.1
45.7
46.4
48.9
SE Asia (4)
11.7
14.7
14.6
12.8
13.1
China
6.3
8.2
8.8
9.4
9.0
South Asia
6.1
6.8
7.0
7.1
7.3
U.S.
East Asia: Korea, Taiwan, Hong Kong, Singapore
Southeast Asia: Malaysia, Indonesia, Thailand, Philippines
South Asia: India, Bangladesh, Sri Lanka, Pakistan
Source: The Conference Board
Producer Price Index for Manufacturing
Industries and Export Price Index for
Industrial Supplies, 1990-2003
Index (1990 = 100)
150
140
Consumer Price Index
130
Producer Price Index
120
110
100
Export Price Index
90
80
70
Source: U.S. Bureau of Labor Statistics
Note: 2003 reflects data through September.
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
60
U.S. Manufacturing Cash Flow, 1990-2001
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
In millions of
dollars
169,469
152,544
156,937
166,462
205,249
234,362
241,834
257,725
225,528
245,950
231,573
198,239
As percent of
total corporate
cash flow
37.2
32.2
30.7
30.9
33.8
34.7
33.9
33.3
30.9
30.4
30.0
25.3
As percent of
manufacturing
output
16.3
14.6
14.5
14.7
16.8
18.2
18.4
18.7
15.8
16.6
15.2
13.9
Source: U.S. Bureau of Economic Analysis, U.S. Department of Commerce
Note: Cash flow is defined as the sum of undistributed profits and depreciation allowances.
Statutory Corporate Tax Rates for the
United States and Its Nine Largest
Trading Partners, 1997 and 2003
Percent
70
1997
2003
60
50
40
30
20
10
0
United
States
Canada
Mexico
Source: KPMG Corporate Tax Rate Survey
Japan
China
Germany
United
Kingdom
South
Korea
Taiw an
France
Burden of the Corporate Tax Rates on U.S.
Manufacturing’s Raw Cost Competitiveness Relative
to the Nine Largest U.S. Trading Partners, 2003
United States
Canada
Mexico
Japan
China
Germany
United Kingdom
South Korea
Taiwan
France
Trade-weighted average
of above countries
Source: Chart 6 and author’s calculations
Difference
Statutory from U.S.
corporate (percentage
tax rate
points)
(percent)
40.0
—
36.6
-3.4
34.0
-6.0
42.0
2.0
25.0
-15.0
39.6
-0.4
30.0
-10.0
29.7
-10.3
25.0
-15.0
34.3
-5.7
-5.6
Employment Cost Index,
Manufacturing Workers, 1993-2003
Percent change, quarter to year ago
10
9
8
7
6
Benefits
5
4
Wages & Salaries
3
2
1
0
1993
1994
1995
1996
1997
1998
Source: U.S. Department of Labor, Bureau of Labor Statistics
1999
2000
2001
2002
2003
Benefits as a Percentage of Total Compensation for
Manufacturing Production Workers, United
States and Its Nine Largest Trading Partners, 2001
United States
Canada
Mexico
Japan
China
Germany
United Kingdom
South Korea
Taiwan
France
Trade-weighted average
of above countries
Benefits as
percent of total
compensation
20.6
15.8
11.2
11.2
8.0
24.2
15.5
29.6
9.1
31.3
Percentage
point
difference
from U.S.
-4.8
-9.4
-9.4
-12.6
3.6
-5.1
9.0
-11.5
10.7
-5.5
Sources: U.S. Bureau of Labor Statistics and “The Labor Market Dynamic in Post-Reform China: History,
Evidence, and Implications,” Manufacturers Alliance/MAPI, ER-561e, September 2003
Note: China data include health benefits only.
Publicly and Privately Funded Health Care
Expenditures in the United States and Its Nine
Largest Trading Partners, 2001
Percent of GDP
16
publicly-funded
privately-funded
14
12
10
8
6
4
2
0
United
States
Canada
Mexico
Japan
China
Germany
United
Kingdom
South
Korea
Taiw an
France
Source: Organization for Economic Cooperation and Development and World Bank
Notes: Data for China reflects total health expenditure; no public-private disaggregation is available. Data for Taiwan date from 1996
and are taken from Eva Liu and Joseph Lee, “Health Care Expenditure and Financing in Taiwan,” Hong Kong Provisional Legislative
Council Secretariat report, June 1998.
Cost of Tort Litigation, United States and
Its Nine Largest Trading Partners, 2000
United States
Canada
Mexico
Japan
China
Germany
United Kingdom
South Korea
Taiwan
France
Trade-weighted average of
above countries
Tort costs
as percent
of GDP
Manufacturing tort
costs as percent of
manufacturing
output
2.0
0.8
N/A
0.8
N/A
1.3
0.6
N/A
N/A
0.8
4.5*
1.4*
0.6*
1.2*
0.6*
3.8*
1.1*
0.6*
0.6*
3.2*
Percentage
point difference
from U.S.
—
-3.1*
-3.9*
-3.3*
-3.9*
-0.7*
-3.4*
-3.9*
-3.9*
-1.3*
-3.2
Source: Tillinghast-Towers Perrin and author’s calculations
* For countries lacking data (Mexico, China, South Korea, and Taiwan), this analysis conservatively assumes that their relative
manufacturing tort costs are equal to half that of the United Kingdom, the lowest of all countries with available data.
U.S. Federal Budget Outlays for Regulatory
Activities, 1990-2003
Millions of Dollars
1990
2003
Social regulation
Consumer safety
Transportation
TSA
Transportation excluding TSA
Workplace safety
Environment
Energy
Economic regulation
Finance and banking
Industry-specific regulation
General business
TOTAL
TOTAL excluding TSA
Source: Mercatus Center and Weidenbaum Center
Percent
change
2,205
1,996
0
1,996
1,158
4,812
560
4,324
9,034
4,756
4,278
1,471
6,493
677
96.1
352.6
N/A
114.3
27.0
34.9
20.9
1,574
574
859
13,739
13,739
1,792
813
2,260
26,864
22,108
13.9
41.6
163.1
95.5
60.9
Manufacturing Compliance Costs Associated With
U.S. Regulations Compliance Activities,
1992 and 1997
(Expressed in constant 2000 dollars)
Total cost, 1997
($billions)
69
Per-employee
cost, 1997
3,691
Economic
48
2,553
Workplace
16
838
Tax compliance
15
822
147
7,904
Environmental
Total
Source: W. Mark Crain and Thomas D. Hopkins, “The Impact of Regulatory Costs on Small Firms,” Office of Advocacy, Small
Business Administration, October 2001, Table 9A.
Cost of Pollution Abatement, United States and
Its Nine Largest Trading Partners, Late 1990s
United States
Canada
Mexico
Japan
China
Germany
United Kingdom
South Korea
Taiwan
France
Trade-weighted average
of above countries
Pollution
abatement
costs as
percent of
GDP
Manufacturing
pollution
abatement costs as
percent of
manufacturing
output
1.6
1.1
0.8
1.4
N/A
1.5
1.0
1.7
N/A
1.4
7.6*
4.8*
3.1*
5.3*
1.6*
5.2*
4.7*
4.3*
1.6*
6.1*
Percentage
point difference
from U.S.
—
-2.8*
-4.5*
-2.3*
6.1*
-2.4*
-3.0*
-3.3*
6.1*
-1.5*
-3.5*
Source: Organization for Economic Cooperation and Development
Note: As in Table 9, the analysis conservatively assumes that countries with missing data (China and Taiwan) bear a pollution
abatement burden equal to half the lowest value of other trading partners (in this case, Mexico).
Natural Gas Prices in the United States and Its Nine
Largest Trading Partners, 1994–2001
(Dollars per million British thermal units)
United States
Canada
Mexico
Japan
China
Germany
United Kingdom
South Korea
Taiwan
France
Source: U.S. Energy Information Administration
1994
2001
Percent
change
$2.87
1.98
2.01
11.75
N/A
4.65
3.57
N/A
7.11
3.57
$4.83
2.74
4.12
10.24
N/A
4.74
3.37
N/A
7.27
4.71
68.3
38.4
105.0
-12.8
N/A
1.9
-5.6
N/A
2.3
31.9
Effect of Key “Overhead Costs” on Raw Cost Index
of Nine Largest U.S. Trading Partners, 2002
(U.S. dollars per hour)
Raw cost
index
United
States
Average
of nine
partners
24.30
19.30
Canada
Mexico
Japan
China
Germany
United
Kingdom
South
Korea
Taiwan
France
27.57
8.11
16.92
5.34
29.60
28.30
23.96
16.41
26.50
Difference relative to U.S. costs in percent
Corporate
tax rate
–
-5.6%
-3.4%
-6.0%
2.0%
15.0%
-0.4%
-10.0%
10.3%
-15.0%
-5.7%
Employee
benefits
–
-5.5%
-4.8%
-9.4%
-9.4%
12.6%
3.6%
-5.1%
9.0%
-11.5%
10.7%
–
-3.2%
-3.1%
N/A
-3.3%
N/A
-0.7%
-3.4%
N/A
N/A
-1.3%
–
-0.5%
-6.0%
-2.3%
12.5%
-2.3%
0.6%
2.1%
4.1%
15.3%
-4.2%
–
-3.5%
-2.8%
N/A
-2.3%
N/A
-2.4%
-3.0%
N/A
N/A
-1.5%
Tort costs
Natural
gas costs
Pollution
abatement
Manufacturing production costs relative to the United States accounting for differences in overhead costs (dollars per hour)
Effective
cost index
24.30
16.02
22.46
6.19
16.64
3.50
29.77
23.14
22.67
12.85
25.77
Source: Author’s calculations based on data in subsequent tables and charts
Note: Data for tort costs and regulatory compliance costs are limited to the industrialized partners. Conservative assumptions have
been made in estimating the missing values, as described in later sections. Thus, the absence of these data likely understates the
overall cost advantage of U.S. trading partners.
Economic Growth is More Balanced
Growth in Major Spending Categories of GDP
(Percent change at annual rate)
25
Consumption
Non-Residential Investment
Exports
Government
20
15
10
5
0
-5
-10
-15
03-IV
03-III
03-II
03-I
02-IV
02-III
02-II
02-I
01-IV
01-III
01-II
01-I
00-IV
00-III
00-II
00-I
-20
Total Economy and Manufacturing Growth
(Quarter-to-quarter percentage change at annual rate)
10
8
6
GDP
4
2
0
-2
-4
-6
-8
Manufacturing Production
90 I
90 III
91 I
91 III
92 I
92 III
93 I
93 III
94 I
94 III
95 I
95 III
96 I
96 III
97 I
97 III
98 I
98 III
99 I
99 III
00 I
00 III
01 I
01 III
02 I
02 III
03 I
03 III
04 I
04 III
05 I
05 III
-10
Source: U.S. Department of Commerce-BEA,
Federal Reserve Board
Job Growth Returns
Net Change in Non-Farm Jobs
(Thousands of jobs)
1200
1000
800
600
400
200
0
-200
-400
-600
-800
05-I
04-I
03-I
02-I
01-I
00-I
99-I
98-I
97-I
96-I
95-I
94-I
93-I
92-I
91-I
90-I
89-I
Source: U.S. Department of Labor
Oil Price Rise This Year, Fall in 2005
Average Refiner Acquisition Cost of Crude Oil
(Dollars per barrel)
35
30
25
20
15
10
5
05-I
04-I
03-I
02-I
01-I
00-I
99-I
98-I
97-I
96-I
95-I
94-I
93-I
92-I
91-I
90-I
89-I
0
Sep-91
Mar-92
Sep-92
Mar-93
Sep-93
Mar-94
Sep-94
Mar-95
Sep-95
Mar-96
Sep-96
Mar-97
Sep-97
Mar-98
Sep-98
Mar-99
Sep-99
Mar-00
Sep-00
Mar-01
Sep-01
Mar-02
Sep-02
Mar-03
Sep-03
Sentiment Indicators are Signaling Growth
Manufacturers Alliance Business Outlook Index
(Percent)
80
70
60
50
40
30
20
Improved profitability promote business
investment growth
After-Tax Corporate Profits
(Four-quarter percent change)
40
30
20
10
0
-10
-20
05-I
04-I
03-I
02-I
01-I
00-I
99-I
98-I
97-I
96-I
95-I
94-I
93-I
92-I
91-I
90-I
89-I
-30
Trade Balance Worsens Despite Dollar Decline
Inflation-Adjusted U.S. Trade
Value of the Dollar
(Year to year percent change)
Weighted Currencies 2000=100
20
1.2
Imports
1.1
15
Developing countries
1
10
0.9
5
0.8
0
Industrial countries
0.7
-5
0.6
Exports
Source: U.S. Department of Commerce-Census
05-I
04-I
03-I
02-I
01-I
00-I
99-I
98-I
97-I
96-I
95-I
94-I
Source: Federal Reserve Board
0.4
-15
93-I
0.5
93-I
94-I
95-I
96-I
97-I
98-I
99-I
00-I
01-I
02-I
03-I
04-I
05-I
-10
Global Growth Surpassing 1990s Average
JPMorgan global real GDP
%oya
8
6
4
2
0
70
Source: JPMorgan
75
80
85
90
95
00
Economic Forecast
Actual
Forecast
Inflation Adjusted--(% Chg.)
2003
2004
2005
GDP
Consumption
Durables
Nondurables
Services
Equipment & Software
Information Processing Equipment
Industrial Equipment
Transportation equipment
Structures
Residential
Exports
Imports
Federal Government
State & Local Government
3.1
3.1
7.4
3.7
2.0
5.2
13.7
-3.9
-10.0
-4.7
7.6
1.9
3.7
8.7
0.6
4.9
3.8
6.7
4.1
3.1
13.0
14.1
6.3
15.8
2.8
3.8
11.6
7.7
5.2
1.0
3.4
3.5
2.6
4.0
3.4
8.4
8.0
9.3
12.8
11.3
-5.6
13.2
6.8
1.0
2.0
Source: Manufacturers Alliance/MAPI simulation of the Global Insight model, Jan. 30
Economic Forecast
Actual
Prices--(% Chg.)
Consumer Prices
Core CPI (Excl. Food & Energy)
Producer Prices, Finished Goods
Business Activity
Nonfarm Inven. Chg. (Bil. 2000 $)
Light Vehicle Sales (Mil. units, saar)
Housing Starts (Mil. units, saar)
Current Account Balance (Bil. $)
Federal Surplus (Unified, FY, bil. $)
Labor
Unemployment Rate (%)
Industrial Activity--(% Chg.)
Manufacturing Production – SIC Based
Computers & Electronic Products
All Less Computers, Communications
Equipment,
& Semiconductors
Factory Operating Rate – SIC Based
Forecast
2003
2.3
1.5
3.2
2004
1.6
1.6
1.3
2005
1.4
1.9
0.0
$4.8
16.7
1.850
-$550
-$426
$78.8
17.2
1.849
-$591
-$508
$76.7
17.0
1.669
-$598
-$413
6.0
5.5
5.2
0.4
14.1
6.1
20.4
6.0
16.3
-0.9
73.4
3.4
77.1
3.3
78.3
Source: Manufacturers Alliance/MAPI simulation of the Global Insight model, Jan. 30
Manufacturers Alliance/MAPI
Industrial Production Forecast
2004-2005
Total
Mining
Utilities
All Manufacturing – NAICS
Durable Goods
Nondurable Goods
All Less Comp., Commun., & Chips
Food
Textile Mills
Textile Product Mills
Apparel
Logging
Wood Products
Furniture & Related Products
Paper & Products
Petroleum & Coal Products
Chemicals
Rubber & Plastics Products
Tires
Glass & Glass Products
Cement
2003
0.4
0.4
5.7
0.2
2.1
-2.1
-0.9
-1.0
-11.1
-2.0
-11.8
-8.8
-1.8
-2.1
-1.2
0.6
0.3
-1.0
-4.3
-0.3
3.1
2004
5.5
1.6
2.6
6.3
9.0
2.3
3.4
1.2
-1.5
2.2
-2.3
-5.6
-0.3
2.6
2.3
2.3
4.9
3.4
2.7
1.9
4.1
2005
5.3
0.6
-3.8
6.1
7.8
3.1
3.3
2.5
-2.4
-1.1
-1.4
-5.0
-4.3
1.4
2.6
3.1
4.6
3.7
2.3
5.5
5.8
Manufacturers Alliance/MAPI
Industrial Production Forecast
2004-2005
Primary Metals
Iron & Steel Products
Nonferrous Metals
Fabricated Metal Products
Machinery
Engines & Turbines
Agricultural & Construction Equip.
Metalworking Machinery
Industrial Machinery
HVAC Equipment
Computers & Electronic Products
Computer & Peripheral Equip.
Communications Equipment
Semicond. & Other Components
Nav., Measuring, Control Eq.
Elec. Eq., Appliances, & Component
Transportation Equipment
Motor Vehicles & Parts
Automobiles
Light Truck & Utility Vehicles
Heavy Duty Trucks
Aerospace Products & Parts
Rrd. Eq., Ships, Boats & Other
2003
-1.8
0.3
-4.2
-2.7
0.0
-6.7
2.3
-2.8
0.4
2.5
14.1
17.4
6.3
28.8
5.0
-2.8
0.3
2.0
-8.8
9.4
-1.2
-5.4
4.5
2004
6.7
7.0
4.5
3.5
7.2
3.6
7.0
4.0
10.2
3.0
20.4
22.9
6.5
39.4
4.9
4.6
3.1
3.9
3.3
2.9
15.4
-1.1
8.1
2005
4.4
3.8
3.9
4.2
5.2
7.1
4.0
4.0
6.2
4.3
16.3
21.1
14.6
19.7
4.1
3.6
1.3
0.9
-4.5
2.1
18.9
1.8
2.8