Digital vs Physical Manufacturing: What the Numbers Show

By / 11.30.2016

Everyone has seen this chart, or something similar, recently. It tracks the production of the manufacturing sector over the past twenty years. Looks pretty good, doesn’t it? Since 1996 manufacturing industrial production has risen almost 40%, despite intense global competition.



But now let’s add another line to the chart–this time, manufacturing industrial production after we remove tech manufacturing.  That’s the blue line in the chart below.

What’s changed? It turns out that once we have taken out tech manufacturing–computers, communication equipment, and semiconductors–the output of the rest of manufacturing has only risen by 5% over the past 20 years, and is well below its 2007 peak.


Over the same period, the output of tech manufacturing has risen by a factor of 20, or 2000%, as least according to Federal Reserve Board estimates (and they have some of the best economists around).

The same divergence shows up in productivity growth. I do a simple calculation, dividing manufacturing industrial production by the number of fulltime equivalent workers in manufacturing, and then I do the same for non-tech manufacturing.  Over this twenty year period, it looks like this:


The top line–the manufacturing industrial production per worker–shows that productivity in manufacturing has almost doubled over the past twenty years. But roughly half of that gain is due to the tech sector. Once we remove  tech production from manufacturing, the 20-year productivity gain falls from 93% to 45%. And while that 45% gain in productivity is nothing to sneeze at, it amounts to only 1.9% annually.

Let’s break down manufacturing labor productivity growth  by industry. These figures come from the BLS.


We see that computer and electronic products are far and away the best performing manufacturing industry, in terms of productivity growth. Then it falls off quickly to transportation equipment (motor vehicles and aircraft), which is the main user of robots. Then productivity growth across the rest of manufacturing ranges from mediocre to downright uninspiring.