Once again the birth-death model provided virtually all the employment gains reported yesterday. While the employment number was thus manufactured, reported employment in manufacturing declined sharply. I guess it is easier to manufacture numbers than actual stuff. Taken in isolation, a reduction in manufacturing employment through productivity improvement is not only not a problem, it is probably a good thing as people are then able to do other things. Hopefully more interesting than standing on an assembly line tightening screws or whatever.

However, the facts are that despite all the said improvements, domestic US manufacturing is not making nearly enough stuff to meet domestic demand, leading to massive imports of stuff. We now import twice as much stuff as we export. That means that, over time, we are selling US assets to the exporting countries to pay for the net imports. This rate of sale is now about 7% of GDP. That adds up to big numbers really fast and at some point we will run out of stuff to sell. Long before that happens, prospective creditors will look at the rapidly depleting means of payment and start cutting us off or raising prices.

There is no problem, per se, in getting out of the manufacturing business. So long as some alternative means of payment exists. Canada, for example, until recently had a weak manufacturing sector but was able to pay through exports of its natural resources. The US doesn’t have that option, we’re not even self-sufficient in agriculture anymore. The problem with “services” is that they are hard to export.

The government has worked hard, through tax cuts and floods of credit, to stimulate demand for stuff. The hope was that demand would pull up manufacturing output and hence employment to help what was and is a generally weak employment picture. The stimulus has instead led to a huge boom in Asia. For example, the average Chinese manufacturing worker costs less than $1 per hour, including benefits, and can use the same manufacturing technology as US companies. This means that US manufacturing is generally not competitive from a cost point of view. Companies are not investing in it and the employment numbers show a steady decline. Although output is not so weak, this productivity improvement is a “hollowing-out” of US manufacturing. While finished goods may be assembled in the US for various reasons, more and more components are coming from overseas. These “stealth” imports show up as improved productivity in US manufacturing.

People are doing other things, of course. Flipping condos and playing poker in a desperate search for a free lunch while living off the proceeds of their home equity loans and credit card indebtedness.