Traditional economic measures of productivity alone do not reveal the full extent of economic benefits contributed by machine tools and related advanced manufacturing techniques. The unmeasured contributions averaged nearly $200 billion per year during the past five years a total of nearly $1 trillion. This represents savings in just two product examples as well as labor productivity improvements in the eight industries that are the most intensive users of machine tools. The measure of economic benefits would be even larger if other products and industries were included in the analysis.
The basis for this conclusion is the Sept. 2000 study by Joel Popkin and Company, Washington, D.C. based economic consultants. It reveals the substantial benefits generated by advanced manufacturing technologies and their positive effect on productivity, an outcome reflecting the blending of new, high productivity machine tool technology with the benefits of information technology based manufacturing processes.
Traditional measures of productivity alone do not reveal the full extent of manufacturing’s true contributions to the growing U.S. economy masking the full potential for continued strong economic growth without inflation. Manufacturing technology, through its application in various types of capital equipment, played a major role in the country’s remarkable economic growth of the 1990s, this analysis of official economic data shows.
Why has manufacturing’s contribution to the nation’s prosperity largely gone unrecognized? Economists believe the main reason that its role has not been fully credited is because of the diverse mix of technological advances in manufacturing and the difficulty of quantifying their total economic benefits.
Yet these contributions to economic growth rival those of computers and information technology. Estimates by Federal Reserve Board economists attribute no more than one half of the recent upswing in productivity to computers and information technology. Thus other forms of improvement deserve a large part of the credit for the upswing in productivity that has given the nation a decade of uninterrupted growth.
Beneficiaries of these understated advances have included nearly everyone:
▪Manufacturers, who make higher quality products faster and at lower cost.
▪Consumers, who pay less for higher quality goods that perform better and last longer.
▪Workers in the manufacturing sector, who acquire new skills and earn higher real wages.
▪The economy, because the U.S. is competitive and inflation stays in check.
PRODUCTIVITY MAKES THE DIFFERENCE
Productivity in durable goods manufacturing is one of the economy’s main drivers. From 1959 to 1996, economy wide multifactor productivity (MFP) the most fundamental measure of productivity that considers factors beyond capital and labor grew at an annual average rate of 0.8 percent for the nonfarm economy, while manufacturing MFP grew considerably faster, at 1.1 percent. Chart 1.2* shows that the durable goods sector accounted for virtually all of the MFP growth in manufacturing during the period from 1971 to 1996, as nondurable MFP was flat during that time. During the 1980s and 1990s, durable goods manufacturing achieved exceptional MFP gains, averaging 4.2 percent annually between 1992 and 1996.
Labor productivity shows a relationship similar to that above. The private, nonfarm economy experienced a distinct slowdown in labor productivity in 1973, and proceeded at that slow pace through most of the l990s. Labor productivity in manufacturing, while also growing at a constant pace until the mid 1990s, accelerated sharply beginning in 1993. Chart 1.4 traces gains in manufacturing output per labor hour to durable goods industries, especially during the 1990s.
*Chart and table numbering conforms to designations used in the main study.
These gains in manufacturing productivity have resulted in enormous benefits.
▪Rapid gains in labor productivity in the durable goods sector generated an additional $618 billion of output (in 1996 dollars) over the 1992–98 period.
▪These same producers also saved $25.3 billion in carrying costs between 1992 and 1997 thanks to a decline in inventory requirements per dollar of sales, attributable to advanced manufacturing processes. This in turn freed up billions of dollars in capital for additional investment.
▪Eight key industries auto parts, aircraft engines and parts, engines and turbines, metal foundries, fabricated structural metal, other industrial machinery, construction and mining equipment, and farm and garden machinery saved a combined total of $24.3 billion in payroll costs in 1997 and $80 billion over the six year period 1992–1997.
▪Consumers realized an actual decline of just over $100 billion in the cost of durable goods from 1996 to 1999.
▪Consumers also saved billions from product quality improvements such as cars with higher fuel efficiency ($50 billion in 1999), reduced maintenance needs ($21 billion in 1998), and savings from lower electricity bills for energy efficient refrigerators and air conditioners ($19.6 billion in 1997).
MANUFACTURING TECHNOLOGY ADVANCES
America is back as a manufacturing powerhouse.
Manufacturing today is complex, competitive, and quality conscious. Consumer demand for mass customization has replaced the earlier “one size fits all” notion of mass production. Manufacturers are now driven by a “faster, better, cheaper” mantra.
To deliver what customers want, manufacturers have reinvented themselves, finding new ways of doing things and reevaluating every aspect of production to improve productivity. To respond to this demand, machine tool makers have instituted changes to enhance productivity and competitiveness in a variety of industries including automobiles, refrigeration, heating and air conditioning, aerospace, construction and mining equipment, and farm and garden machinery (See Table 2.1).
Machine tools have also become increasingly tied to information technologies to form a combined system of manufacturing that produces goods more quickly and with greater accuracy than before. Among the most important advances has been the change from manual control of the machine tool’s movements to numeric control and computer numerical control. This has fostered new uses for machine tools. Five axis machine tools are now widely used, not only in the defense industry but also in civilian applications. The ability to produce complex geometric patterns more quickly and accurately, without using templates, has increased the number of items for which the use of machine tools is practical.
During the last two decades, a revolution in manufacturing technology generally and advances in machine tools specifically enabled manufacturers to reinvent themselves and to restore the competitive power of the United States as a world class producer of durable goods.
There has also been a marked increase in the use of computing power and automation in machine tools, such as the ability to read computer aided design math models into the machine to determine its movements. The aircraft industry provides a good example of how advances in machine tool technology have improved the manufacturing process. In one dramatic example, an aerospace company [McDonnell Douglas] changed the manufacturing process for landing gear bulk heads of the C 17 aircraft to take advantage of high speed machining. Under the new process, bulkheads are made with two parts, rather than 72, and require only 35 fasteners to hold them together, rather than 1,720 under the previous method. Furthermore, machining was completed 15 times faster.
BENEFITS OF QUALITY IMPROVEMENTS TO CONSUMERS
Advances in machine tool technologies have made it possible to improve quality dramatically and build better, longer lasting products at lower prices. The Consumer Price Index (CPI) documents these improvements. Between 1982 and 1999, the overall CPI increased by 73 percent, or at an annual