Manufacturing continues to shrink as a percentage of U.S. economic activity.

Manufacturing's share of the U.S. economy continues its 50-year decline. Last year, manufacturing GDP fell to an all-time low of just 12 percent of the economy, according to a Manufacturers Alliance/MAPI analysis of recent data from the Commerce Department.

"Both major segments of manufacturing--durable and nondurable industries--declined," according to MAPI. Durable manufacturing accounted for 7 percent of the economy last year, down from 9.2 percent in 1995. Nondurable manufacturing fell to just 5 percent of the economy, from 6.7 percent in 1995.

In 1993, manufacturing as a percentage of the U.S. economy stood at 15.9 percent, down from its post World War II peak of 28.3 percent in 1953.

Other industries associated with manufacturing shrank over the last 10 years including retail and wholesale trade, transportation and warehousing, according to the analysis done by Daniel Meckstroth, MAPI's chief economist. The government's share of GDP fell by 1 percentage point to 12.4 percent, which is above the 12 percent GDP level for manufacturing.

The service sector now accounts for 80.6 percent of U.S. gross domestic product, an increase of 2.6 percentage points over the past 10 years. Finance and insurance were the largest gainers, growing by 1.5 percentage points, to reach 8.1 percent of GDP. Professional, scientific and technical services increased its share of GDP by 1.1 percentage points to 6.9 percent. The largest contributor to GDP in 2005: real estate, rental and leasing, at 12.5 percent.

"Manufacturing experienced deflation in an inflationary economy" over the 10-year period, MAPI points out. "GDP is measured by multiplying the change in quantity by the change in price. The quantity of manufacturing value added increased 40 percent from 1995 to 2005 while manufacturing prices declined 9 percent. As a result, manufacturing GDP increased 27 percent. However, more than all the deflation in manufacturing came from one industry--computer and electronic products.... When computer and electronic products are excluded from manufacturing, a more realistic breakdown of price and quality changes emerge ... Value added in manufacturing, excluding computer and electronic products value added, increased at the slowest rate of any of the major industries except agriculture. Manufacturing prices, excluding computer and electronics products, increased 17 percent from 1995 to 2005, while the quantity of manufactured goods increased 11 percent ... substantially underpeforming growth in the general economy. Manufacturing value added, excluding computer and electronic products, thus increased 30 percent over the last 10 years. The average annual growth rate from 1997 to 2005 for manufacturing excluding computer and electronic products is only 1.2 percent. Average annual growth for manufacturing including computers and electronic products is 3.0 percent; and overall inflation adjusted GDP is 3.1 percent per year."

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Industries with some of the largest increases in GDP over the last 10 years made the gains primarily due to price increases. "Mining value added increased 188 percent from 1995 to 2005 as a result of a 250 percent increase in prices and an 18 percent decline in quantity," notes MAPI. Construction prices increased by 75 percent while output increased by only 18 percent; and education prices were up 73 percent while output was up 17 percent.

Value Added By Industry As A Percentage Of Gross Domestic Product

                                                           1995-2005
                                                           Percentage
                                                             point
Industry                                            2005     change
Manufacturing                                       12.0      -3.9
Government                                          12.4      -1.0
Utilities                                            1.9      -0.6
Retail trade                                         6.6      -0.4
Agriculture, forestry, fishing. and hunting          1.0      -0.3
Wholesale trade                                      5.9      -0.3
Transportation and warehousing                       2.9      -0.2
Other private sector services                        2.4       0.0
Arts, entertainment, and recreation                  0.9       0.1
Educational services                                 0.9       0.1
Management of companies and enterprises              1.8       0.1
Accommodation and food services                      2.7       0.2
Information                                          4.6       0.4
Real estate and rental and leasing                  12.5       0.4
Health care and social assistance                    6.9       0.4
Administrative and waste management services         3.0       0.5
Mining                                               1.7       0.7
Construction                                         4.8       0.9
Professional, scientific, and technical services     6.9       1.1
Finance and insurance                                8.1       1.5
Total Gross Domestic Product                       100.0       0.0
   Addendum: Manufacturing excluding computer
   and electronic products                          10.9      -3.2