The jobs report was solid today, providing another month of evidence that the recovery is reliably reaching the job market. But relative to the rest of the employment story, the manufacturing sector has settled into a less favorable trend.
Though American manufacturing came out of its jobs trough with some vigor back in 2010, over the past couple of years, factory job growth has notably slowed, especially compared to the rest of the private-sector job market. Factory employment was up only 4,000 last month and has been flat for the past three months.
Since a stronger dollar makes our manufactured exports more expensive overseas and imports from our trading partners relatively cheaper, it is worth asking if this dynamic could be in play.
The figure suggests that this is certainly a possibility. It shows private sector employment, manufacturing employment, and a trade-weighted index of the dollar against the currencies of our trading partners, with all variables indexed to 100 in January 2010.
Sources: BLS, Federal Reserve
The period of stronger manufacturing employment growth corresponds to the period when the dollar was “more competitive,” i.e., falling relative to the currency values of our trading partners. Conversely, as it has strengthened, factory employment growth has slowed.
Other forces are of course in play, including productivity in the sector. Perhaps the increased use of robotics are to blame. However, that would have to show up in manufacturing productivity and while that’s a jumpy variable, there’s been no uptick in the longer-term trend. Also, labor-replacing technology tends to be a more gradual factor relative to the impact of higher frequency currency movements.
There’s a well-established and common-sense connection between the value of the dollar and the international competitiveness of our manufacturers, so again, this is certainly a plausible explanation for the slowing in factory job growth. Still, it’s a relative short-term trend and it will be worth watching in months to come.
For now, we can conclude that the job market overall is definitely improving at a decent clip, but manufacturing is not quite keeping up. The appreciating dollar is likely one reason for that.