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Industry output and employment: a slower trend for the nineties.

Industry output and employment: a slower trend for the nineties

The U.S. economy is projected to add another 18 million jobs by the year 2000, an average of 1.5 million per year from 1988. This rate of growth is slower than in the past, when annual job gains averaged 2.3 million over a comparable 12-year period. Slower growth is directly tied to the expectation of less labor force expansion over the next decade.

The 18 million new jobs are expected to be added primarily in the service-producing sector. In contrast, manufacturing employment is projected to shrink slightly, from 19.4 million in 1988 to 19.1 million at the turn of the century. Among the service-sector leaders, retail trade is expected to add 3.8 million jobs; private health services, 3.0 million; and business services, 2.7 million. Government employment, especially in public schools and in State and local safety and general government functions, is also projected to add about 1.6 million new jobs. Despite these gains, the rate of growth for all these divisions from 1988 to 2000 is much slower than that between 1976 and 1988.

Total job growth averaged 2.3 percent a year from 1976 to 1988, but is only expected to average 1.2 percent annually through 2000. Job growth parallels the projected growth in the labor force. Details are in the article by Howard N Fullerton on pp. 3-12, but in broad terms, a slowdown in labor force growth projected for the nineties is a continuation of a trend that started in the late 1970's, as the baby-boom generation became fully absorbed into the labor force. Coupled with the smaller numbers of new, young workers during the next decade is the expectation of a slowdown in the rate of increase of female labor force participation.

Assumptions about the overall level of economic activity, which are also key factors underlying the industry output and employment projections, are in the article by Norman C. Saunders on pp. 13-24. Economic growth, as measured by real gross national product, is projected to average 2.3 percent a year between 1988 and 2000, and the unemployment rate is projected to be 5.5 percent. Strong gains are especially projected for exports, leading to strength in the manufacturing sector.

Three alternative scenarios were projected for 2000: a base, or moderate case; a low-growth alternative; and a high-growth alternative. The data discussed in this article pertain mainly to the moderate case scenario, with a section at the end describing the low and high projections.

Employment in major industries

Total employment is projected to rise from 118 million in 1988 to 136 million by the turn of the century. (See table 1.) Most of these jobs, 122 million, will be wage and salary jobs in the nonfarm sector. Of the rest, 3 million are projected in agriculture (a slight decline from the 1988 level), and almost 10 million represent nonfarm self-employed and unpaid family workers. The number of self-employed is projected to grow at about the same pace as wage and salary employment - both substantially slower than in the previous 12 years. Service-producing industries are projected to rise to 79.0 percent of all nonfarm wage and salary jobs, compared with 75.9 percent in 1988. Goods-producing industries are expected to lose in employment share, as they have done for decades. [Tabular Data Omitted]

Among the major industry divisions, services will continue to dominate the job growth picture. Employment in the services division is projected to rise from 25.0 million in 1988 to 33.7 million in 2000. This increase accounts for almost one-half of all the new jobs added. The services division encompasses such diverse categories as health, business, personal, and recreational services, among others. Health and business services alone, the two largest, are projected to employ more than 18 million by the year 2000, an increase of almost one-third over their current levels. The rate of growth for services, however, is much slower than it has been in the past. Job growth is projected to average 2.5 percent a year between 1988 and 2000, compared with 4.8 percent a year during the 1976-88 period.

Retail trade will be the second largest of the major divisions by 2000, surpassing manufacturing as a source of employment. Retail jobs are projected to increase by 3.8 million between 1988 and 2000, raising employment in this sector to 22.9 million. Again, the projected rate of 1.5 percent is much lower than the 3.1 percent experienced between 1976 and 1988.

Many jobs in retail trade are part time. Average weekly hours were 30.0 in retail trade in 1988, compared with 40.6 in manufacturing. A problem in finding workers willing to work part time exists in many local labor markets and may persist through part of the next decade, as the size of the youth labor pool shrinks and more and more women seek full-time careers. Consequently, the steady drop in the retail workweek, evident for decades, is projected to taper in the nineties.

The government division is projected to add 1.6 million jobs, virtually all at the State and local level. An increase in school enrollments over the next few years is expected to result in 945,000 new jobs in public education. Federal civilian employment has been virtually flat for the past 20 years at 2.7 - 3.0 million, and is projected to remain at about that level through the end of the century.

Other service-producing industries are projected to add 2.5 million jobs - 1.1 million in finance, insurance, and real estate, 907,000 in wholesale trade, and 548,000 in transportation, communications, and public utilities. Like the other major divisions, the rate of job gain expected during 1988-2000 is only about half the pace of the previous 12 years.

Within the goods-producing sector of the economy, manufacturing jobs are projected to decline slightly, to 19.1 million in 2000. At the trough of the last recession in 1983, manufacturing jobs dropped to 18.4 million, and many feared the sector would never recover. Restructuring, plant closings, and layoffs dominated the news. Trade imbalances in 1984-86 exacerbated these problems and prevented manufacturing from bouncing back as the rest of the economy picked up steam. The value of the dollar began to fall from its unprecedented high, however, and by mid-1987 the trade balance improved. Both production and jobs in manufacturing industries began to expand, even in sectors previously identified as long-term losers. In 1988, manufacturing employment recovered to 19.4 million.

Despite this recent healthy growth, the factory job level is still below the 1979 peak of 21 million, and is not projected to climb much higher than current levels. Many of the closed plants were the older, inefficient ones, and while no additional massive closings are anticipated, it is unlikely that tomorrow's factories will employ as many workers as in the 1970's. Production, however, is projected to show very healthy growth during the 1988-2000 period, boosted by an export expansion of 4.7 percent a year. Real output of U.S. manufacturing is projected to grow 2.3 percent a year (2.9 percent for durable goods), in line with the economy as a whole. (See table 2.) [Tabular Data Omitted]

The modest decline projected in factory jobs masks a pronounced shift occurring in the occupational distribution of manufacturing employment to more highly-skilled jobs. While the total employment loss is projected at only 316,000, operator, fabricator, and laborer occupations are projected to lose 714,000 jobs and precision production workers (especially assemblers and inspectors), 137,000. Losses will also be registered for administrative support and service occupations. Partially offsetting these declines are gains in professional occupations (espicially engineers), executive and management positions, marketing and sales, and technicians. (For more detail on occupational projections, see the companion article by George Silvestri and John Lukasiewicz on pp. 42-65.)

Among other goods-producing sectors, construction is projected to add 760,000 jobs between 1988 and 2000, to reach the 5.9-million level. Construction activity is expected to expand at a 2.1-percent annual pace, slower than the average rate between 1976 and 1988. Growth rates will vary significantly, however, for the different types of construction. The current slump in industrial building construction is expected to reverse during the nineties as growing manufacturing industries invest in the most up-to-date factory technologies. Present oversupplies of office and commercial space are expected to be absorbed by the early 1990's, and construction of these facilities will then experience an upturn. The slowdown in growth of the general population, as well as in the formation of new households, will limit residential construction, especially for single family homes.

Medical care

Health care will continue to be one of the most important industry sectors in the economy. Data from the Health Care Financing Administration show that total expenditures for health care (both public and private) topped 11 percent of current-dollar gross national product in 1987, and may rise to 15 percent by the end of the century.(1) The more narrowly defined BLS projections show that output of private health care services (in constant-dollar terms) rose from 3.3 percent of gross duplicated output in 1977 to 3.7 percent in 1988, and will grow to 4.2 percent by 2000.(2) Under either measure, health care is a significant and growing portion of the U.S. economy.

In job terms, this significance is amplified. Employment in the private health services industries rose from 4.4 million in 1976 (or 1 of every 18 wage and salary jobs) to 7.1 million in 1988 (1 of every 15), and is projected to grow to 10.1 million by 2000 (representing 1 of 12 jobs). The increase in health care jobs between 1988 and 2000 accounts for more than one-sixth of the total payroll job growth projected.

One of the most significant differences between the shares of output developed by the Health Care Financing Administration and those used by BLS in this analysis is that the former are in current dollars while the latter are adjusted for price increases. Medical care prices have consistently risen faster than the average for all goods and services, and this has been a major factor leading to recent cost containment efforts. Over the 1965-80 period, the Consumer Price Index rose 6.6 percent a year for all items, but 8.3 percent for medical services.

Because of burgeoning costs, government and private health insurance programs instituted a series of measures in the early 1980's to try to hold down outlays. The medicare prospective payment system limiting government reimbursement of hospital procedures, as well as restrictions by private health insurers, forced a slowdown in health care price increases and also led to a major transformation of the health care industry. Procedures formerly conducted on an inpatient-basis in higher cost facilities such as hospitals shifted to lower cost centers such as outpatient facilities and clinics. Hospital utilization dropped sharply, as measured by admissions and inpatient days. The average patient stay declined from 7.1 days in 1982 to 6.4 days by 1987.(3) Releasing patients earlier led to a surge in demand for nursing home and home health care. In addition, diagnostic testing previously done in hospitals become more frequently performed at a lower cost by independent labs which can test large batches of specimens. Consumers have turned to health maintenace organizations (HMO'S) in record numbers to hold down their own medical insurance costs. From 1982 to 1988, enrollments in HMO'S increased from 10.8 million to 29.3 million.(4)

The output and employment data on the individual health care industries clearly illustrate this dramatic shift. Output (in constant 1982 dollars) rose almost three times faster in outpatient facilities (that is, HMO'S and group health associations, diagnostic testing services, home health agencies, visiting nurses associations, and other related medical services) than in hospitals. Following are output and employment indexes of the detailed health care industries:
 Index (1982 = 100)
 1984 1986 1988


Output:

Offices of health

practitioners 107.1 113.9 122.4

Nursing and personal
 care facilities 106.3 120.6 128.1
 Hospitals 104.1 110.6 121.3
 Outpatient and related 121.1 149.4 161.6


Employment:

Offices of health

practitioners 111.2 122.3 136.3

Nursing and personal
 care facilities 107.6 116.9 123.6
 Hospitals 99.6 100.8 109.5
 Outpatient and related 123.6 158.7 181.0


In employment terms, the shift toward outpatient services has been even more pronounced. Jobs in private hospitals rose about 10 percent between 1982 and 1988; in doctors' offices, 36 percent; and in outpatient facilities, 81 percent. Despite the much slower rate of growth, however, hospitals remain the largest employer among the medical services industries, with 3.3 million workers.

The 10-percent increase in hospital employment between 1982 and 1988 all occurred only within the last 2 years. After 7 years of virtually no growth, more than 150,000 jobs were added to private hospitals in 1988 alone. This indicates that the pressures of rising demand for hospital services may eventually have to be accommodated. Demand pressures stem from several factors, some of which are expected to intensify in the future: new medical technologies, a rapidly growing aged population, and treatment of AIDS patients.

New technologies are the most important factor in boosting the demand for health services. Because of advances, patients are likely to undergo more tests and diagnostic procedures, take more drugs, see more specialists, and be subjected to more aggressive treatments than before. Medical intervention will be possible for conditions previously undiagnosed or regarded as untreatable. The use of sophisticated and expensive new equipment, labor-intensive acute care, and multiple doctors' visits and lab tests is bound to accelerate.

Person over age 75 are significantly higher users of hospital services than those under 75; they are hospitalized more frequently and stay longer. In addition, the rapidly growing population age 85 and older uses twice as many hospital days per capita than do persons ages 65 to 74.(5) One reason for this is the presence of multiple health problems in the very old, which causes much longer hospital stays. The 75-to-84 age group will expand in numbers from 9.5 million in 1988 to 12.0 million in 2000. The number of persons age 85 and older will increase from 3.0 million to more than 4.6 million. Both of these groups are growing much faster than the total population.(6)

The ability or willingness of the economy to pay for the new technologies and for the care of the aged clearly leads to uncertainty about the future level of medical services. In the moderate case scenario, hospital output is projected to grow an average of 3.3 percent per year between 1988 and 2000 and employment, 2.1 percent, the slowest growth of the four private medical services industries. (See table 3.) The fastest growing medical care sector will be outpatient facilities and related health services. The projection for this industry is 4.6 percent annual growth in real output and 4.7 percent in jobs, ranking this industry fifth in output growth and second in employment growth among all the 226 industries used by BLS in projecting output and employment. (See table 4.) Offices of health practitioners are projected to add jobs at a 3.5-percent yearly rate, and nursing homes and personal care facilities at a 3.1-percent pace. These employment growth rates for medical service industries, while higher than for most other industries, are below historical trends because of continued cost-cutting pressures. [Tabular Data Omitted]

In terms of absolute levels, more jobs will be added in the offices of health practitioners than in hospitals, despite the relatively larger size of hospital employment. Together, the four private health service industries are projected to add 3 million new jobs.

Because of the rapid expansion of health care employment compared to other industrial sectors, 7 of the 10 fastest growing occupations between 1988 and 2000 are health-related. Medical assistants, home health aides, radiologic technologists and technicians, medical records technicians, medical secretaries, physical therapists, and surgical technologists rank among the top 10 fastest growing of 500 or so occupations studied.

Business services

Business services come close to health care as a source for a large number of new jobs over the next 12 years. Employment in business services is projected to rise from 5.6 million in 1988 to 8.3 million by the end of the century. The 2.7-million increase represents almost 1 of every 6 new wage and salary jobs added between 1988 and 2000.

Business service is broken down into nine industries in the economic growth system. (See table 5.) The largest of these and the one projected to add the most new jobs over the next decade is personnel supply service, which includes the fast-growing temporary help supply industry. Temporary help supply has risen dramatically in the last few years. From 1978, when data were first available, to 1988, employment multiplied almost threefold, rising from 341,000 to 1,016,000. At this 11.5-percent per year rate, the temporary help supply industry has been one of the fastest-growing industries in the whole economy. Employers find temporary help advantageous because of the ease and convenience of meeting peak workloads or covering for absent permanent employees. Also, because temporary help supply agencies typically provide fewer fringe benefits, their rates frequently are competitive with the cost of directly hiring additional employees. Workers are attracted to these agencies because of the training opportunities and the flexible scheduling offered; some, however, may find it the only employment available.

Future gains in temporary help are expected to be slower than the rapid growth in the past few years, as the industry matures and stabilizes. For personnel supply services as a whole, of which four-fifths was temporary help in 1988, the rate of job growth is projected to average 4.1 percent through the nineties. Industry experts expect the skill level of temporary help workers to shift, with a slight increase in the proportion of computer programmers, accountants, engineers, and computer-skilled clerical workers, and a slight decline in the proportion of laborers and clerical jobs that are not computer-related.

The fastest growing of the business service industries, indeed, the fastest in the whole economy, will be computer services. Employment in this industry sector is projected to grow by 4.9 percent a year, rising to 1.2 million by 2000. Demand for operations research analysts, computer systems analysts, programmers, and related computer specialists will continue to be very high through the turn of the century. Packaged software products as well as customized computer systems will continue to multiply. An ever-expanding number of industries, firms, government agencies, and private individuals are expected to propel the demand for computer and data processing services.

Another large business service industry, although one not growing as rapidly as personnel or computer services, is the research, management, and consulting sector. Employment in this industry is also expected to approach 1.2 million by the year 2000, averaging 3.2 percent yearly growth. Included in this industry are commercial physical and biological research and testing labs, market research, management services and consultants (providing activities such as operations research, human resources planning, financial planning and budgeting, and others), and public relations services. These types of services are being purchased by more and more private firms and by government.

The remainder of the business services industries will have somewhat slower growth than the three just described, although all are well above the growth rate projected for total employment. The sector which includes business services not elsewhere classified is expected to post 3.1 percent annual growth, adding 340,000 jobs. A large variety of activities is included in this sector, such as check validating, interior decorating, paralegal services, salvaging, speakers' and lecture bureaus, telemarketing, and many newly developing business services. Services to buildings, which include primarily janitorial services, is projected to add 243,000 jobs. Detective and protective services employment is expected to expand by 168,000. Most of this growth will be for building guards.

Education

Almost 1.2 million jobs will be added to education over the next decade. Most of the new jobs will be in the public sector, reflecting rising enrollment projected for elementary and secondary schools.

School enrollment below the college level mirrors population growth, and, as can be seen in the following tabulation, the elementary school population (ages 5-13) will rise by more than 2 million between 1988 and 2000 (almost all of that in the 10-13 age group), and the secondary school population (ages 14-17), by about 1.3 million: [7]
 Population (millions)
 Under Ages Ages Ages Ages
 age 5 5-9 10-13 14-17 18-24
1975 16.1 17.6 16.3 17.1 27.7
1980 16.5 16.6 14.5 16.1 30.4
1985 18.0 16.8 13.3 14.9 28.7
1988 18.3 18.0 13.4 14.0 26.9
2000 16.9 18.1 15.4 15.3 25.2


Employment in State and local government education was fairly level in the late 1970's and early 1980's as the number of school-age children dipped. By 1983, however, the youngsters born to the large baby-boom cohort started kindergarten and began to put upward pressure on public school facilities. Employment began to edge up, and reached an all-time high of 7.3 million in 1988. As these children advance through intermediate and secondary schools, employment in State and local government education is expected to climb to 8.3 million by the year 2000.

Private school enrollment is not a directly linked to population as is public school enrollment. About three-fifths of the employment in private education is in colleges and universities, and factors other than population are important determinants of enrollment in these institutions. The traditional college-age population (18-24) has been declining since 1981, but enrollment has moved generally in an upward direction nevertheless. Rising enrollment rates for older students, women, foreign students, and part-time students have offset the absolute decline in the 18- to 24-year-old population.

Employment in private colleges and universities has been rising even faster than enrollments, with more than 200,000 jobs added between 1983 and 1988 to reach 964,000. Part of the explanation for this large employment increase has been a rise in the proportion of part-time instructors in institutions of higher education. [8] Employment in all of private education, which includes private elementary and secondary schools, vocational schools, and miscellaneous training programs as well as colleges and universities, is projected to go up another 223,000 by the year 2000.

Not all the increase in public and private education will be for teachers. Increases are also expected for teacher aides, counselors, technicians, and administrative staff.

Related to the educational sector is the private child-care industry. The rapid growth of this sector in the 1980's has been linked to the rising labor force participation rates of mothers with young children and to the large increase in the absolute number of children under age 5. (See previous text tabulation.) Future growth is projected to be slower due to the expected 1.4 million decline in the under age 5 population over the next 12 years. Also, even though there will be a continued rise in labor force participation rates among young women 16-34, the rise will be much slower than in the past 12 years, except for the 30- to 34-year-olds. A factor supporting employment growth in the child day-care industry is the trend for private companies and government agencies to set up day-care facilities at the workplace. These employer-supported facilities, run under contract with independent day-care providers, should encourage a continued shift from care in the home and day care by relatives to use of child-care centers.

Retail trade

Retail trade is projected to add 3.8 million new jobs between 1988 and 2000, second only to services among all the major industry divisions. The number of retail trade jobs is expected to reach almost 23 million by 2000, accounting for almost 1 of every 5 wage and salary jobs in the economy. Further, many self-employed workers are found in the retail trade sector as well, adding 1.9 million to the total in that sector in 2000.

Eating and drinking places make up the largest industry within the retail trade division, and one of the fastest growing. Payroll employment is projected to rise 1.8 percent a year in eating and drinking places to 7.8 million by 2000. This rate of growth, however, is slower than historical increases in such jobs for several reasons. The major reason is the slower growing population, limiting the demand for new restaurants. Another reason is that the market may be reaching saturation, especially the fast-food market. Finally, part of the historical employment growth was related to an increasing proportion of part-time workers, a trend which is to taper.

Evidence already indicates that the shift to part-timers may be slowing, in that average weekly hours in eating and drinking places are not falling as rapidly in recent years as they have for the past three decades. This trend holds for other retail trade establishments as well. Retail trade accounts for about two-thirds of all the part-time workers in the economy, and part-time workers are predominantly women (two-thirds), and have a higher proportion of young workers ages 16-24 (one-third) than the full-time work force. The source of potential part-time workers has been diminishing as the youth labor force has declined in absolute numbers and fewer women seek part-time jobs. Eating and drinking places and other retail trade industries may have to offer higher compensation or greater benefits to entice full-time jobseekers, at least in the short run. The decline in the youth labor force is expected to reach its trough in 1996, then begin to increase again as the large number of children of baby-boom parents reaches working age.

There has been some attempt by eating and drinking places to fill their part-time job openings with older workers, but the data do not show that this has been successful. Demographic data from the Current Population Survey are not available at the detailed industry level, but data are available for detailed occupations. If we consider employment in food service occupations, more than two-thirds of which is concentrated in eating and drinking places, we can draw some inferences about the age distribution of the industry. Following are employment levels and percentages in food service occupations by age group, 1983-88:

16-19 20-24 25-34 35-54 55-65 65 +

1983: Level

(thousands) 1,248 1,107 977 1,080 347 101

Percent of

total 25.7 22.8 20.1 22.2 7.1 2.1

1988: Level

(thousands) 1,293 1,030 1,239 1,175 356 89

Percent of

total 25.0 19.9 23.9 22.7 6.9 1.7

As the tabulation shows, the age composition of food service workers is shifting slightly away from teenagers and young workers, but not to those over 55. Rather, the 25-34 age group now accounts for an increased proportion. While the number of older workers in the labor force will rise substantially through the nineties (by 2.3 million), these workers are reluctant to accept low-skilled, low-paid jobs that typically provide few fringe benefits. (9)

Projections of employment for other retail trade industries indicate that grocery stores will gain 555,000 new jobs by 2000. Grocery stores are adding more labor-intensive services such as prepared meals in response to consumer demand for convenience. They are also staying open longer in areas where restrictions on hours of operation are being lifted. Department stores are projected to add 305,000 jobs, which represents only a 1.2-percent rate of growth, and miscellaneous shopping goods stores are projected to gain 269,000 jobs.

Other service-producing industries

As noted earlier, the finance, insurance, and real estate sector is projected to add almost 1.1 million payroll jobs between 1988 and 2000, bringing employment in that sector to 7.8 million by the turn of the century. The fastest growing industry within the financial sector is expected to be security and commodity brokers and exchanges, but the 3.0-percent annual employment growth rate projected is sharply lower than the rate in recent years in this industry, when employment expanded about 10 percent a year.

Employment in the communications industry division is projected to remain almost flat at about 1.3 million through the next decade. Output will show healthy growth, but new technology will result in very little job gains.

Among the transportation sectors, especially strong growth is projected for air transportation and the related industry arrangement of passenger transportation (travel agents). Despite safety concerns and near-capacity airports, demand for air travel is projected to grow rapidly. Job gains are projected to average 2.1 percent a year from 1988 to 2000, and output, 3.8 percent.

Within the services division, mention has already been made of health care, business services, education, and child day care. Other industries in the services division expected to show sizable employment increases include hotels (410,000 more jobs), legal services (329,000), residential care (224,000), engineering and architectural services (222,000), amusements and recreation (202,000), and accounting services (200,000).

Manufacturing and foreign trade

Led by expectations of high growth in U.S. exports, the manufacturing division is projected to enjoy a 2.3-percent per year expansion in real output, and a modest employment decline of 0.1 percent a year.

These generally optimistic projections come in the wake of the strong recovery in manufacturing in 1987 and 1988. Until then, despite several years of recovery from the deep recessions of 1980-82, many U.S. manufacturing industries were still languishing. The decline of inflation, but continued high real interest rates, caused investment to shift from real assets such as factories and producers' equipment towards financial assets. It also caused the U.S. dollar to rise to extraordinary levels compared to foreign currencies, closing many overseas markets to U.S. exports but making imports relatively cheap. Particularly hard hit by disinflation and an overvalued dollar were the sectors related to commodities - farming, mining, and manufacturing, especially heavy goods manufacturing.

By mid-1987, a correction in the foreign exchange markets began to have an impact. As the value of the dollar fell and foreign economies experienced fairly strong growth, U.S. manufacturers were able to recover many overseas markets lost during the 1984-86 period. Export growth far surpassed most other final demand categories, and imports slowed their rate of gain as the falling dollar made import prices swing up. Some of the manufacturing sectors which showed the greatest gains in their export markets during this rebound were selected machinery industries, aircraft and missile engines and equipment, pulp and paper mills, meat products, chemicals, and plastics.

After a few months' lag, manufacturing employment also experienced an upturn. Factory jobs rose to 19.4 million in 1988, more than 400,000 above the 1986 level. An analysis by Richard Devens found that manufacturing industries with higher ratios of exports to shipments had more rapid job growth over the first half of 1988 than did industries where exports were less important. (10)

Continued growth in U.S. exports is projected to buoy the manufacturing division through the coming decade. Exports (in constant dollars) are projected to post 4.7 percent yearly growth, compared with 2.3 percent for total GNP and 2.7 percent for imports. The much faster rate of growth for exports than for imports will result in a positive net trade balance over the nineties.

Most of the export growth will be concentrated in capital goods industries, in particular, computers. In fact, mainly because of the value of computer output, durable goods production will enjoy one of the fastest rates of output expansion of all the other major industries, 2.9 percent a year. Excluding the computer industry, however, lowers the rate of growth of real manufacturing output to 1.7 percent.

Valuing the output of the computer industry in constant dollars has been a question economists have been grappling with for some time. (11) Because of the explosive growth in processing capability, [Tabular Data Omitted] the price per unit of "computer power" has declined dramatically, thereby raising the value of real output of computer equipment. Using this pricing method, the growth rate of real computer output has averaged more than 25 percent per year for the past three decades. Projecting this output series forward, even with much more moderate assumptions about future technological changes in computers, yields a staggeringly high level of computer output by 2000. This leads to a question about the consistency of this pricing method with the method used in other industries.

Given this unresolved dilemma in valuing computer output, the projection of the precise level of computer equipment output (and exports and imports) possesses a great deal of uncertainty. However, a few general trends can be identified. Computer manufacturing is very likely to be one of the fastest growing industries, with domestic output, exports, and imports all rising sharply. Further, it is expected that computer exports will be larger than imports, maintaining the positive trade balance now enjoyed in that industry through the end of the century.

Few other major groups within manufacturing are projected to have a positive trade balance - only instruments, food products, tobacco, printing and publishing, and chemicals. For all other major manufacturing groups, the value of imports in 2000 is projected to be higher than exports.

This is not a new phenomenon. Negative trade balances have been predominant for almost all major manufacturing sectors as far back as 1977. This condition clearly worsened in the 1984-86 period, but then eased in 1987 and 1988, and is projected to continue to improve as exchange rates stabilize and strong foreign economic growth spurs exports. However, it should be noted how important the assumption concerning computer exports is to future real manufacturing trade balances.

Domestic manufacturing

Other factors affecting manufacturing besides the foreign trade situation relate to domestic demand. Investment in producers' durable equipment is projected to enjoy the second fastest rate of growth among all final demand categories, second only to exports. This will further bolster that portion of the manufacturing sector supplying capital goods. On the down side, defense expenditures are projected to actually fall in real terms as the buildup of the 1980's reaches an end. Defense demand for most types of equipment and supplies will be lower in 2000 than at present under the moderate case assumptions. Demand for manufactured goods from the consumer sector is projected to slow, especially for motor vehicles.

Consumer demand for new automobiles is slowing for several reasons. Demographic changes are limiting the market for new cars, specifically, slower population growth in general and an absolute decline in the number of first-time buyers (those ages 16-24). In addition, high relative prices, longer loan maturities, and extended warranties are encouraging consumers to hold onto their cars longer. These factors lead to reduced demand, but will be somewhat offset by the projection of sharply curtailed growth in auto imports. Because it is assumed that more foreign auto companies will open factories in the United States, and that the price of imported cars will rise even faster than domestic prices, imports are expected to decline slightly as a share of the total auto market.

Domestic production of motor vehicles is projected to expand slowly, 1.5 percent a year. Furthermore, continued innovations in factory automation will allow this output to be produced with fewer workers - auto employment is projected to fall from 856,000 in 1988 to 786,000 by 2000.

It has already been noted that the computer industry will enjoy the fastest rate of output growth of all manufacturing industries, indeed of all industries in the economy, even allowing for the difficulties inherent in measuring real computer output. Jobs in computer equipment manufacturing are also projected to expand, from 418,000 in 1988 to 453,000 in 2000. Many more of these jobs will be held by nonproduction workers, especially engineers, technicians, systems analysts, and managers. Industries related to computer manufacturing will also enjoy high production levels, for example, semiconductors and related devices and miscellaneous electronic components.

Other fast-growing manufacturing industries include those relating to health care. Output growth is projected to be very strong for optical and opthalmic products (in particular, spectrographs and electron microscopes), x-ray and other electromedical apparatus, medical instruments and supplies, and drugs. These rank among the fastest growing output industries in the whole economy. Employment is not very large in these industries, however, and only about 93,000 jobs are projected to be added.

The defense slowdown will have a significant impact on a selected number of manufacturing industries, but some of them will be able to recoup defense losses from alternative sources. Radio and TV communication equipment depended on defense purchases for more than 40 percent of its output in 1986, but will sell only 22 percent to defense in 2000. An absolute decline in real defense purchases is projected to be more than compensated for by a large rise in private investment purchases of communications equipment, particularly from the air transportation, broadcasting, and communications industries. Similarly, the aircraft industry relied on defense for more than half its market in 1986, but this share will drop to less than one-third by 2000. Exports and private purchases will buoy the production of U.S. aircraft and aircraft engines and equipment through the end of the century.

Ship building also will be affected by reduced defense demand, but boat building for the consumer market should take up some of the slack. Different establishments within the industry will be affected by this switch, but overall output of the ship and boat building industry is projected to remain essentially level through the next decade. Employment is projected to fall, however, from 193,000 to 171,000.

Among the heavy machinery industries, the recovery experienced in 1987 and 1988 is expected to moderate over time. The outlook for most of these sectors is for steady but modest output growth from 1988 to 2000, accompanied by slight declines in employment.

Many of these machinery industries rely on exports for about 10-30 percent of their market, and after losing domestic markets during the 1980-82 recessions, they suffered again during the years of the large trade imbalances. The upturn in exports in 1987 revived these industries, and some of them, such as materials handling equipment, refrigeration and service industry machinery, and miscellaneous machinery, have finally reestablished their 1979 prerecession real production levels. Many more still lag behind their prerecession peaks, however, including engines and turbines, farm and garden equipment, construction, mining, and oilfield machinery, metalworking machinery, special industry and general industrial machinery, and office and accounting machines. Furthermore, employment in virtually every machinery sector is far from the 1979 level despite some new hiring in 1987 and 1988, and it is unlikely to rise any higher. Exports and domestic investment growth will support production in the heavy industrial sectors in the future at about a 1- to 2-percent annual rate, but output gains will be accomplished without additional workers.

The same is true for primary and fabricated metal industries. The foreign trade recovery in 1987 and 1988 boosted even those manufacturing industries previously identified as long-term losers. Imports halted their steady rate of market takeover, and key metals purchasers such as autos, heavy machinery, and construction supplies, had healthy production gains in 1988. Primary metals output was up almost 20 percent in real terms between 1986 and 1988, led by increases in steel, iron and steel foundries, aluminum, copper, and nonferrous wire drawing and insulation. Even employment experienced a turnaround. Steel, for example, added 9,000 jobs in 1988; previously, the steel industry posted nine continous over-the-year declines.

However, the gains in metals, while large in percentage terms, were made from a very low base. Several years of plant closings and restructuring reduced the size of the primary metals industry in the United States. Domestic production levels in 1988 were still far below the peak years of the late seventies, and it is unlikely the industry will regain its former size. Substitute products and cheaper imports have virtually eliminated some of the demand for domestic metals. Employment in primary metals is projected to fall from 772,000 in 1988 to 700,000 in 2000, and fabricated metals will lose 79,000 jobs, reaching 1,352,000 in 2000. Many of the fabricated metal industries are linked to the slow-growing auto industry or to defense (ordnance).

Within the nondurable goods portion of manufacturing, food production is projected to rise faster than total population because of a significant increase in exports, particularly of grain mill products. Shifts are expected to occur among the various food industries, reflecting changing consumer preferences. Faster than average growth will be posted by canned, dried, and frozen foods, grain mill products, soft drinks and flavorings, and miscellaneous food products. Slower growth is expected for meat, dairy, bakery, and confectionery products and for alcoholic beverages. Most food industries will continue to invest in automated processing equipment, thereby raising productivity levels and reducing employment. The exception is meat products, where productivity improvements resulting from increased assembly line speed have reached a limit. Future gains are restricted by the necessity for many hand operations in red meat processing.

Slow population growth of only 0.7 percent a year will also be a factor limiting the apparel industry over the next decade. Demand is expected to grow faster than population because of rising income levels, but more of that demand will be met by imports. Apparel imports are projected to climb to more than 42 percent of the total market in 2000, compared with about 36 percent in 1987. As a result, domestic apparel output is projected to have only 0.5 percent annual growth, and employment will be cut back from 893,000 in 1988 to 739,000 in 2000, a reduction of 154,000 jobs. Textile industries will suffer from the slow growth of domestic apparel production, but can be expected to find strength in other markets, in particular, exports (affecting fabric mills) and construction (affecting floor covering mills).

Printing and publishing is one of the few manufacturing sectors where employment growth has been accelerating throughout the 1980's. The basis for this growth has been the rapid expansion of printed material (such as catalogs, specialty magazines, business forms, and school textbooks), and the low barriers to entry enticing many new small firms into the field. This has been especially true in commercial printing, where low initial investment costs have spurred the creation of many small companies to meet the growing demand from the trade, financial, business, and professional services sectors. Commercial printing posted 6.9 percent real output growth and 4.1 percent job growth each year over the 1982-88 period. Miscellaneous publishing, although smaller, boasted 9.6 percent output growth and 7.6 percent employment growth.

Future gains are projected to slow in printing and publishing as overall economic growth slows, but 189,000 new jobs are expected to be added, in contrast to actual declines in most other manufacturing sectors.

Alternative scenarios

This article has focused on the results of the moderate growth projection scenario, but two alternatives were also prepared. The alternatives show the effects of changes in some of the key assumptions of the macroeconomic model discussed by Norman C. Saunders on pp. 13-24 in this issue. In the high-growth scenario, output and employment grow more rapidly than in the moderate case because of a larger labor force and a much higher rate of growth of labor productivity. The low growth scenario is characterized by higher unemployment, inflation, increasing Federal and foreign trade deficits, and lower productivity growth. Employment gains average 1.7 percent a year between 1988 and 2000 in the high alternative, 1.2 percent in the base case and only 0.6 percent a year in the low alternative. Even the high-growth model does not match the 2.3-percent rate of growth in employment over the previous 12-year period.

Durable goods manufacturing falls proportionately more in the low-growth scenario than any of the other major industry divisions, because the capital goods export boom and strong business equipment purchases that characterize the moderate case do not occur in the low growth scenario. (See table 6, pp. 34-38.) Government employment, in contrast, represents a larger share of total employment in the slow growth scenario, although the absolute level of government jobs is lower than the base case.

In the high scenario, the greater number of jobs (than in the moderate case) is more evenly spread out among the major industry divisions, with the exception of manufacturing, which gets a substantially larger share. More than 26 million jobs are projected to be added overall during the 1988-2000 period in the high alternative, versus 18 million under the conditions of moderate growth.

Footnotes

(1) "National health expenditures in 1986," Health Care Financing Review, Summer 1987, pp. 1-36. (2) The Health Care Financing Administration data include not only private health care services (the BLS measure), but also government health care services, drugs and medical sundries, eyeglasses and appliances, program administration and net cost of private insurance, government public health activities, research, and construction of medical facilities. The BLS ratio is smaller for two other reasons. For one, the Health Administration's data are in current dollars, the BLS data, in constant (1982) dollars. Secondly, the Health Administration's ratio is a share of GNP or final value added, while the BLS ratio is based on gross duplicated output, which includes not only final value added but intermediate inputs as well.

It should be noted that measuring real output in medical care, as in many other service industries, is more difficult than measuring the real output of goods because of the lack of comprehensive price deflators. A program to develop service sector price measures is currently underway by BLS. (3) Vital and Health Statistics., series 18 (National Center for Health Statistics, 1988). (4) Group Health Association of America, Inc., Washington, DC. (5) Vital and Health Statistics, 1988. (6) "Projection of the population of the United States, 1987 to 2080," Current Population Reports, Series P-25, No. 1018 (Bureau of the Census, 1989). (7) Data for 1975-85 are from Current Population Reports, Series P-25, Nos. 917 and 1022 (Bureau of the Census); data for 1988 and 2000 are from "Projections of the population," Current Population Reports (Bureau of Census). (8) Projections of Education Statistics to 1997-98, CS 88-607 (National Center for Education Statistics, September, 1988), p. 73. (9) Diane E. Herz and Philip L. Rones, "Institutional barriers to employment of older workers," Monthly Labor Review, April 1989, pp. 14-21. (10) Richard M. Devens, Jr., "Employment in the first half of 1988," Monthly Labor Review, August 1988, pp. 15-19. (11) See "Improved deflation of purchases of computers," Survey of Current Business, March 1986, pp. 7-9.
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Author:Personick, Valerie A.
Publication:Monthly Labor Review
Date:Nov 1, 1989
Words:7884
Previous Article:The aggregate structure of the economy.
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