Fisher Investments Editorial Staff
US Economy, GDP, Capitalism

More With Less

By, 02/03/2011

Story Highlights:

  • The US economy surged forward in Q4 2010, logging its highest quarterly production output since Q4 2007. Yet, unemployment remains seemingly incorrigibly high.
  • Surprisingly to many, the US is still the top manufacturing country in the world, outpacing China by more than 40%. 
  • Productivity gains and advances in efficiency have enabled US manufacturers to produce more, with less. Likewise, US manufacturers have shifted towards producing higher-margin, more expensive, and more complex items.
  • While unemployment certainly isn't good, high productivity is positive for society in the long term. New workers in a high-productivity economy simply juice production even more.

You may have missed it amid the chaos in Egypt and the storms across most of the eastern United States, but the US economy logged the highest quarterly production output since Q4 2007. Strong growth, yet, unemployment remains stubbornly high at 9.4%. What gives? A huge productivity gain. GDP per worker rose over 5% from Q4 2007 to Q4 2010. In short, the American economic engine is producing more than it ever has—just with fewer workers.

That may seem ominous, and certainly, higher unemployment is nothing to cheer. But higher productivity definitely benefits society in the long run. As we've said before, "growth comes first, then jobs." As the growing economy requires more workers, the increasing workforce should juice production even more.

The media often extols Chinese industrial production growing by leaps and bounds each year. But few seem to realize America remains by far the top manufacturing country in the world, out-producing second-place China by more than 40%. How do we do it? Our rising productivity is a reason. Higher efficiency means a leaner, more flexible manufacturing force that is able to ramp up (and down) production nimbly as market forces dictate.

When folks bemoan the death of US manufacturing, likely they are referring to manufacturing jobs, not the output itself. And it's true, manufacturing employment has shrunk for decades—but that's true globally. Plus, some of the manufacturing job losses can be explained by US manufacturers dumping lower-profit margin items in favor of more complex and expensive goods—shifting the nature of US manufacturing, not necessarily destroying it. And, while some manufacturing jobs in the US are lost, they are frequently replaced by safer, greener, and higher-paying ones in other industries. And indeed, small business employment, where such new opportunities frequently arise, has been on the rise.

No one wants to see unemployment stay high forever. And if history is a decent guide, it won't. But learning to produce more, more efficiently is the silver lining to recessions and (temporarily) higher unemployment.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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