Goods Production Still Drives US Economy Despite Decline of Manufacturing

The Federal Reserve recently published a report highlighting the continued importance of goods production in the US economy. Despite the decline of manufacturing's share of private sector employment from 35% in the 1950s to less than 10% today, physical goods remain a driving force.

Research by Ryan A. Decker shows that recessions are almost always caused by contracting goods production, with services output growth slowing down during these periods but rarely experiencing outright contractions. This is evident from figure 2, which plots the contributions to 4-quarter GDP growth of goods GDP and services GDP since 1950.

Furthermore, while industrial production has seen no net growth in the last two decades, there is significant variation across types of goods and their end uses. For instance, production of goods intended for use by businesses, led by energy materials, has seen substantial growth.