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The outlook for the national economy
continues to improve. The index
of leading economic indicators has risen for four consecutive months, April
through July. This indicates real
GDP growth will be respectable for the remainder of the year.
The labor market, however, remains weak when compared to past
expansions. For the record this
recovery, which commenced after the March-November 2001 recession, has
experienced the least amount of job growth of any expansion since World War
II.
The previous statement about the labor market,
however, ignores the fact that job growth has taken place in a number of
sectors when measured from 4th Quarter 2001.
For example financial activities, education and health services,
leisure and hospitality, and government have all experienced job growth at the
national level. The lagging
sectors, manufacturing, retail, and transportation and warehousing, have
experienced a continued decline in payroll numbers.
However, a closer examination of the figures shows that the decline in
manufacturing payrolls accounts for about 80 percent of the contraction. In other words, the manufacturing sector has been and
continues to be the sector hardest hit by the prevailing economic conditions.
Manufacturing payrolls were declining even before the recession began.
Over 17.1 million people were employed in manufacturing at the start of
2001; by mid 2003, the number had collapsed to 14.8 million. This situation, along with a sharp increase in the percent of
individuals unemployed for more than 27 weeks, suggests that we are
experiencing a structural rather than cyclical change in our economy.
Nearly 22 percent of the people unemployed have been out of work for
more than six months.
A fundamental shift away from manufacturing
activity has strong implications for manufacturing dependent on states like
Wisconsin. While it is true that
macroeconomic policies like low interest rates, easing of monetary conditions,
increases in defense expenditures, and tax cuts may stimulate aggregate
demand, they may do little for the domestic manufacturing sector if demand for
manufactured products can be satisfied from worldwide sources, or from
increases in domestic productivity. These
circumstances seem to suggest that the domestic manufacturing sector will
continue to lag behind the rest of the economy.
Manufacturing jobs often pay relatively high
wages and provide a good living for high school educated workers.
If this type of employment becomes increasingly difficult to come by,
how will this segment of our population be able to compete in a knowledge
intensive global economy? This is
a very serious problem and will affect the entire nation.
Consider that in 1990 only about 14% of our economy was involved with
exporting or importing. By the year 2000, exporting plus importing activity accounted
for approximately 29 percent of GDP. There
is little doubt that the U.S. economy has become much more integrated with the
world economy. The layoffs
planned by the paper company Stora Enso North America illustrate this point.
Stora Enso, is one of the largest employers in central Wisconsin and is
headquartered in Finland. Approximately 2,650 people in Central Wisconsin are employed
by this company. Due to a global
overcapacity in the paper products industry the company recently announced
that it would eliminate about 500 local jobs by mid 2005, reducing their
employment to about 2,150 workers in the Wisconsin River valley area.
In addition, a recent study from UW-Madison reports that Wisconsin has
lost more than 50,000 manufacturing jobs over the past two years.
In sum our nation is going to have to develop
a strategy to respond to the challenges posed by a global economy.
Traditional macroeconomic solutions will not raise all boats in a post
NFTA and WTO era. Serious
consideration will need to be given to the training and education of our
workforce. This of course comes
at a time when the nation and states are incurring massive budget deficits and
the outlook for education and training programs are bleak.
However, if this situation is not addressed this country will become
increasingly divided from an economic and political standpoint. |
