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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 30, 2010 at 9:45 AM

How lost manufacturing pours flames on the unemployment fire

A good deal of dread is leading up to Friday’s unemployment report. The consensus is trending not just to continued weak hiring but to actual losses of jobs. As Ryan Sweet of Moody’s Economy.com puts it:

As measured by ADP, June’s net gain of 13,000 private jobs was noticeably below expectations and below May’s revised gain of 57,000 (previously 55,000). ADP has tended to undershoot the increase in private employment over the past year as measured by the Department of Labor, but this latest weakness makes us a little uneasy about our forecast for a net gain of 100,000 private payroll jobs. Including census layoffs, we forecast that Friday’s official employment report will show total nonfarm payrolls fell by 155,000 this month.

Many factors are at work here, but we can’t overlook the increasing U.S. dependence on financial work and housing — both bubble-driven and unsustainable — as its manufacturing base has eroded. Since 1890, America has been the world’s manufacturing leader based on output. But it’s expected to give up that spot to China next year.

In the lead-up to the G-20, scholar and author Joel Kotkin wrote a provocative piece for the Daily Beast emphasizing that the strongest nations now are those with diverse bases in manufacturing and natural resources. We have perhaps entered a “post-information age” where cutting-edge tech sectors aren’t enough. He writes:

…it’s not smart to give up the basics — unless perhaps you are Liechtenstein or Monaco — and hope to have enough money left to sustain your drive into high-tech industry. Do you really think that the rising industrial powers have any intention of ceding media, finance, and technology to Americans, Japanese or Europeans? I would not count on it.

This may seem a hard sell in Seattle with its software, e-retailing, biotech and gaming development powerhouses. But Kotkin isn’t saying those areas don’t matter. And his argument jibes with the Seattle Times report on the top Northwest companies of the decade. Who performed the best? The manufacturers (and this didn’t even include Boeing).

Diversity is critical. But one also can’t get away from the way manufacturing adds value in a way that creates and sustains family-wage jobs. As it continues to fade, recapturing the lost jobs and living standards will be that much more difficult. It will be nearly impossible in places such as the Midwest. What remains will be a source of brutal competition among states. And globalization as practiced and executive decisions about offshoring should bear greater scrutiny — whether that happens is another matter. People will be angry and desperate, not the best mood for thoughtful consideration of our economic future.

Today’s Econ Haiku:

Financial reform

Seemed like a very weak broth

Let’s add more water

Comments | More in Aerospace/Boeing, Manufacturing

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