By now we all know that the U.S. economy just turned in its best quarter in nearly two decades. The real gross domestic product grew at an annual rate of 7.2 percent in the third quarter, twice the increase in the second quarter and the strongest pace of growth since 1984. More significantly, business investment grew at an 11 percent annual rate, the fastest since 2000, and durable goods purchases grew at a 27 percent annual rate in the third quarter.
For months, economists have argued that a real recovery would not take hold until business executives had confidence to start investing again. That now appears to be happening. The Business Roundtable said earlier this month that 23 percent of its executives expected to increase capital spending in the months ahead, while only 12 percent were cutting.
This correlates nicely with the results from ASSEMBLY magazine's eighth annual capital equipment spending survey. It forecasts that U.S. assembly plants will spend more than $2 billion on assembly equipment during 2004, with one-quarter of manufacturers planning to spend more on assembly technology next year than in 2003. This is an excellent portent for the U.S. economy in the long term and you can read the whole story in senior editor John Sprovieri's comprehensive report beginning on page 34.
Even so, we've been losing manufacturing jobs in the United States for 39 straight months; the total now stands at 2.8 million, and some of those jobs are gone forever. The third quarter boom came as businesses either continued to lay off workers or refused to expand their payrolls. Indeed, the darkest shadow over the economy now is unemployment, which stubbornly remains above 6 percent of the labor force.
However, factory employment is falling worldwide, and more so in China, Japan and Brazil than in the United States. According to a recent report in The Wall Street Journal, economists at Alliance Capital Management LP (New York) looked at employment trends in 20 large economies and found that from 1995 to 2002, more than 22 million jobs in the manufacturing sector were eliminated, a decline of more than 11 percent.
Contrary to conventional U.S. beliefs, the research found that American manufacturing workers weren't the biggest losers. About 11 percent of U.S. manufacturing jobs went away in this period, while 20 percent disappeared in Brazil, 16 percent in Japan, and 15 percent in China. Competitive pressure has forced factories to become more efficient and the advances in technology that improve productivity have enabled them to do so. Global industrial output rose more than 30 percent while manufacturing employment declined.
The global economy continues to revive, but manufacturing workers aren't yet "moving on up" at the same pace.