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.Source: Bureau of Labor Statistics.73632$$CH502-13-03 10:25:5088Copyright 2003 Institute for International Economics | http://www.iie.com Figure 5.3 US manufacturing employment in the past decadethousands of workers19,00018,50018,00017,50017,00016,5001992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Source: Bureau of Labor Statistics.in figure 5.2, especially allowing for some lag between dollar movementsand trade movements.It is striking, and it is not a coincidence, that duringboth of these strong-dollar periods, through mid-2000, the cyclical factorswere working to sustain employment, and so the overall impact onemployment was rather modest.The two large upward movements of the dollar were driven by theability of the US economy to attract large capital inflows.Relative to therest of the world, when the US economy is growing strongly, the returnon capital rises; in addition, interest rates rose with the large budgetdeficits of the 1980s, attracting capital from around the world.In practice,therefore, the two strong-dollar episodes since 1973 have coincided withtimes of strong cyclical growth in US demand, thereby minimizing theextent of adjustment or resource reallocation that has been required.As noted above, the offsetting effect of dollar movements and cyclicalmovements applies only through mid-2000.I turn now to the 1990s expan-sion and the subsequent downturn.Manufacturing Employment and Productivity, 1992-2002Figure 5.3 shows seasonally adjusted monthly employment from January1992 through September 2002, the most recently available (preliminary)PERSISTENT DOLLAR SWINGS AND THE U.S.ECONOMY 89Copyright 2003 Institute for International Economics | http://www.iie.com datum.Because of a recession that had started in 1990, manufacturingemployment remained sluggish until mid-1993 (the jobless recovery ).Employment then grew by 860,000 from July 1993 to April 1998 beforestarting to decline gradually, with about 350,000 jobs lost through August2000.At that point, the US economy tipped into a sharp growth recessionfollowed by a mild overall recession, and an additional 1.86 million manu-facturing jobs were lost through September 2002.The manufacturing jobloss in this recession has been far more severe than in the recession ofthe early 1990s.What are the forces at work over this 10-year period and in the down-turn in particular? First, the rate of productivity growth increased in the1990s, especially after 1995.Manufacturing output per hour increased at2.6 percent a year from 1979 to 1990, followed by a rate of 3.2 percent ayear from 1990 to 1995 and 3.8 percent a year from 1995 to 2001.A higherrate of output growth would have been needed just to hold employ-ment constant.The strength of manufacturing productivity growth during the down-turn and the start of the recovery is surprising.It grew by 2.6 percent ayear from mid-2000 until the second quarter of 2002, despite sustainedweakness in manufacturing output.After September 11, 2001, productiv-ity was particularly striking, increasing at an annual rate of 5.9 percentover the three quarters from the fourth quarter of 2001 through the firsthalf of 2002.Manufacturing employment continued to decline eventhough the sector was turning the corner in terms of output.Uncertaintyabout the economic outlook likely encouraged employers to make layoffsfaster than in prior periods of demand weakness.Second, during the 1990s expansion there was a shift of US investment.There was strong growth in investment in the expansion, but much ofthat growth was concentrated in information processing equipment andsoftware.The information technology (IT) hardware sector has modestlevels of employment, and rapid real output increases were met byextraordinary increases in productivity.The software sector is not partof manufacturing.Thus the investment boom in the 1990s, especially after1995, was very strong in terms of increasing the real capital stock, butnot in terms of the output of the traditional areas of manufactured goods.As the United States has become more of an information economy, this haschanged the magnitude and mix of the demand for manufactured goods.Third, the slowdown that started in 2000 and the recession of 2001 wereconcentrated in manufacturing.Even though the overall downturn (sofar) has been very mild in terms of GDP, the drop in the domestic demandfor goods was sharp.Figure 5.4 shows the deviation from trend of thedomestic demand for goods (GDP of goods plus goods imports minusgoods exports) from 1990 to the first quarter of 2002.6 The time trend over6.The data are in current dollars, although the corresponding real values move in verymuch the same pattern.GDP of goods includes the value added in manufacturing, but also90 DOLLAR OVERVALUATION AND THE WORLD ECONOMYCopyright 2003 Institute for International Economics | http://www.iie.com Figure 5.4 Domestic demand for goods: Deviation from trend,1990-2002Source: Bureau of Economic Analysis, and author s calculations.this period has been removed.The figure shows that the downturn of 2000-02 resulted in a very sharp decline in goods demand, and the employmentdecline was also large.Trend-adjusted domestic demand for goods fellby 9.3 percent from the second quarter of 2000 through the fourth quarterof 2001, while manufacturing employment declined by 7.2 percent overthe same period.7 The decline in US manufacturing employment occurredin parallel with a decline in the demand for manufactured goods by USconsumers and businesses.Last but not least, the pattern of the dollar as the 1990s expansion endedwas very different from the movement of the dollar as the 1980s expansionended.The dollar started to decline in 1985 and came down quickly andsubstantially.As the growth of domestic demand slowed in the UnitedStates, the competitive position of US manufacturers sharply improved,helping to sustain US growth.By contrast, the dollar remained very strongeven after the 1990s expansion slowed and ended, and in fact it continuedthe value added in upstream and downstream industries, notably wholesale and retail [ Pobierz całość w formacie PDF ]
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.Source: Bureau of Labor Statistics.73632$$CH502-13-03 10:25:5088Copyright 2003 Institute for International Economics | http://www.iie.com Figure 5.3 US manufacturing employment in the past decadethousands of workers19,00018,50018,00017,50017,00016,5001992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002Source: Bureau of Labor Statistics.in figure 5.2, especially allowing for some lag between dollar movementsand trade movements.It is striking, and it is not a coincidence, that duringboth of these strong-dollar periods, through mid-2000, the cyclical factorswere working to sustain employment, and so the overall impact onemployment was rather modest.The two large upward movements of the dollar were driven by theability of the US economy to attract large capital inflows.Relative to therest of the world, when the US economy is growing strongly, the returnon capital rises; in addition, interest rates rose with the large budgetdeficits of the 1980s, attracting capital from around the world.In practice,therefore, the two strong-dollar episodes since 1973 have coincided withtimes of strong cyclical growth in US demand, thereby minimizing theextent of adjustment or resource reallocation that has been required.As noted above, the offsetting effect of dollar movements and cyclicalmovements applies only through mid-2000.I turn now to the 1990s expan-sion and the subsequent downturn.Manufacturing Employment and Productivity, 1992-2002Figure 5.3 shows seasonally adjusted monthly employment from January1992 through September 2002, the most recently available (preliminary)PERSISTENT DOLLAR SWINGS AND THE U.S.ECONOMY 89Copyright 2003 Institute for International Economics | http://www.iie.com datum.Because of a recession that had started in 1990, manufacturingemployment remained sluggish until mid-1993 (the jobless recovery ).Employment then grew by 860,000 from July 1993 to April 1998 beforestarting to decline gradually, with about 350,000 jobs lost through August2000.At that point, the US economy tipped into a sharp growth recessionfollowed by a mild overall recession, and an additional 1.86 million manu-facturing jobs were lost through September 2002.The manufacturing jobloss in this recession has been far more severe than in the recession ofthe early 1990s.What are the forces at work over this 10-year period and in the down-turn in particular? First, the rate of productivity growth increased in the1990s, especially after 1995.Manufacturing output per hour increased at2.6 percent a year from 1979 to 1990, followed by a rate of 3.2 percent ayear from 1990 to 1995 and 3.8 percent a year from 1995 to 2001.A higherrate of output growth would have been needed just to hold employ-ment constant.The strength of manufacturing productivity growth during the down-turn and the start of the recovery is surprising.It grew by 2.6 percent ayear from mid-2000 until the second quarter of 2002, despite sustainedweakness in manufacturing output.After September 11, 2001, productiv-ity was particularly striking, increasing at an annual rate of 5.9 percentover the three quarters from the fourth quarter of 2001 through the firsthalf of 2002.Manufacturing employment continued to decline eventhough the sector was turning the corner in terms of output.Uncertaintyabout the economic outlook likely encouraged employers to make layoffsfaster than in prior periods of demand weakness.Second, during the 1990s expansion there was a shift of US investment.There was strong growth in investment in the expansion, but much ofthat growth was concentrated in information processing equipment andsoftware.The information technology (IT) hardware sector has modestlevels of employment, and rapid real output increases were met byextraordinary increases in productivity.The software sector is not partof manufacturing.Thus the investment boom in the 1990s, especially after1995, was very strong in terms of increasing the real capital stock, butnot in terms of the output of the traditional areas of manufactured goods.As the United States has become more of an information economy, this haschanged the magnitude and mix of the demand for manufactured goods.Third, the slowdown that started in 2000 and the recession of 2001 wereconcentrated in manufacturing.Even though the overall downturn (sofar) has been very mild in terms of GDP, the drop in the domestic demandfor goods was sharp.Figure 5.4 shows the deviation from trend of thedomestic demand for goods (GDP of goods plus goods imports minusgoods exports) from 1990 to the first quarter of 2002.6 The time trend over6.The data are in current dollars, although the corresponding real values move in verymuch the same pattern.GDP of goods includes the value added in manufacturing, but also90 DOLLAR OVERVALUATION AND THE WORLD ECONOMYCopyright 2003 Institute for International Economics | http://www.iie.com Figure 5.4 Domestic demand for goods: Deviation from trend,1990-2002Source: Bureau of Economic Analysis, and author s calculations.this period has been removed.The figure shows that the downturn of 2000-02 resulted in a very sharp decline in goods demand, and the employmentdecline was also large.Trend-adjusted domestic demand for goods fellby 9.3 percent from the second quarter of 2000 through the fourth quarterof 2001, while manufacturing employment declined by 7.2 percent overthe same period.7 The decline in US manufacturing employment occurredin parallel with a decline in the demand for manufactured goods by USconsumers and businesses.Last but not least, the pattern of the dollar as the 1990s expansion endedwas very different from the movement of the dollar as the 1980s expansionended.The dollar started to decline in 1985 and came down quickly andsubstantially.As the growth of domestic demand slowed in the UnitedStates, the competitive position of US manufacturers sharply improved,helping to sustain US growth.By contrast, the dollar remained very strongeven after the 1990s expansion slowed and ended, and in fact it continuedthe value added in upstream and downstream industries, notably wholesale and retail [ Pobierz całość w formacie PDF ]