There have been numerous articles talking about the future of American manufacturing and whether we as a nation will ever return to a position of dominance in the production of goods. Recently an article appeared in TIME Magazine that caught my eye. The article spoke about how the United States was, for the most part, an agricultural nation that saw most of its citizens working on farms. On those farms were various animals that helped with the planting and harvesting of crops. Today, those animals have been replaced by machines. The reason for this change was that workers left the farm to take higher paying manufacturing jobs in the city.
American manufacturing is going through a similar transition. While manufacturing employment was strong following World War II, the percentage of workers in manufacturing has declined since the 1970s to a level where only 9% of the labor force is in manufacturing today.
There are various arguments as to why U.S. manufacturing began its decline. One popular opinion is that American manufacturing jobs have been sent overseas to countries where the labor cost is considerably lower. The country seen as the prime example is China. According to the Bureau of Labor Statistics, manufacturing labor costs in China are 4% of the United States (2009 data, http://bls.gov/fls/home.htm). The United States has experienced a decline in manufacturing jobs while China has seen a large increase.
So how do robots factor into a resurgence of American manufacturing? While one may think that robots would only lead to further declines in manufacturing jobs, the idea of American manufacturers being able to utilize machines for simple repetitive tasks instead of employing low-cost foreign labor could help to make U.S. manufacturers more competitive, and keep their production operation in the United States.
Conventional robots take up significant time and resources for a manufacturer. They are expensive and often need to be cordoned off to keep human workers safe. In addition, conventional robots often take a full day to be programmed for a specific task. They are not overly adaptable.
The new robot, Baxter, can perform many simple tasks with minimal programming (around 45 minutes) by front-line employees instead of engineers. Almost anyone can be trained how to program the robot and if the Baxter completes one task it can be shown how to do another rather quickly. And at $22,000, the robot is very affordable. A video highlighting this adaptable robot is below.
The significance is that Baxter can perform simple and menial tasks that would often be performed by low wage labor, often in other countries. Robots, like Baxter, could help to erase the advantage that foreign countries have in performing simple, repetitive tasks, therefore allowing industries to manufacture their products competitively in the U.S.
Before Baxter, it was easier and cheaper to use human labor than make automation more flexible. Now small manufacturers will be able to increase efficiency and productivity, making them more competitive in the global marketplace. This can help to drive job creation and improve the economy. So while many have believed that robots would be the end of American manufacturing, they just may be the savior.
- Humanoid Robot to Revolutionize U.S. Manufacturing (theepochtimes.com)
- Will Baxter be the Model T of the robotics industry? (nextbigfuture.com)
- Rethink Robotics Unveils Baxter : The Humanoid Robot That Can Think And Work Like You (thetechnologycafe.com)
- Rethink Robotics unveils ‘human-like’ robot for U.S. manufacturers (bizjournals.com)
- Rethink robotics reveals its revolutionary Baxter Manufacturing Robot (nextbigfuture.com)
- Meet Baxter: A Robot With Common Sense [VIDEO] (mashable.com)
- Part 1: Future Of Robotics: Manufacturing Gets A Makeover With Baxter (forbes.com)
I recently came across a very interesting visual blog from General Electric (GE) that provides a visual representation of who has been working in the U.S. over the last 50 years. Users are able to visually track how many people have been working by age, gender, or business sector from 1960 to 2011.
With all of the recent talk about unemployment figures, I thought I would repost a blog from early 2011 that summarized how federal unemployment figures are calculated and what methods are used.
In the study of economics, there are two approaches that are used to ask and answer questions posed to economists. The first approach tries to understand the behavior and operation of economic systems without making judgments or expressing opinions about whether the outcomes are good or bad. This is considered positive economics. The second approach analyzes the outcomes of economic behavior, provides an opinion whether they are good or bad, and provides possible courses of action. This is considered normative economics.
Normative economics or policy economics deal with questions like: should the government subsidize certain types of manufacturing over others; should Medicare and Medicaid be means tested; and should the U.S. place tariffs on Chinese imports to address the reluctance of China allowing their currency to float?
To be certain, many normative economic questions involve positive economic questions. To know whether a specific economic decision or policy is a good one, we first must determine if such a policy can be implemented and what the likely consequences will be before an evaluation can take place.
Some will argue that positive economic analysis is nearly impossible. Economists and analysts all enter into the process with biases that will influence their work. It can even be said that the questions they choose to analyze and answer themselves are shaped by ideological views (whether political or moral). Regardless, it is important to note that economists who attempt to answer positive economic questions are attempting to provide research and analysis that is devoid of bias to the best of their ability.
Positive economics can be divided into two main areas: descriptive economics and economic theory. Descriptive economics is the compilation of data that describe facts ad events. One example of such data is the Statistical Abstract of the United States which is published by the Department of Commerce every year and helps to describe many features of the national economy. These data and much more can be found on the internet and more specifically at the Bureau of Labor Statistics (www.bls.gov).
Economic theory attempts to analyze the data, interpret it, and provide generalizations about the data. Economic theory is a set of statements regarding the cause, effect, action or reaction of an economic system. One of the most basic economic theories is the law of demand. When the price of a good or service rises, people tend to buy less of it. When the price of a good or service falls, people tend to buy more of it. Economic theory arises from both statistical data and observation of human behavior. As with any science, whether social or physical, scholars construct a model to state a theory. The theory is then tested to determine its strength or validity.
It is these basic methods that economists and economics students employ to describe, understand, analyze, and evaluate our economy and those around the world. Economic methods are important to understand because when statements are made by economists and government leaders, we as citizens must be able to distinguish whether a statement being made is a positive economic statement or a normative economic statement. Saying that Wisconsin’s unemployment rate has fallen is a positive statement. Saying that the Governor’s economic policies have led to the decline of the unemployment rate is a normative statement. It is important for people to know what a statement of fact is (positive) and what a statement of opinion is (normative). In addition, you will need to understand common assumptions and pitfalls that are made when describing economic theories and models. This will be a topic for a future article.
In previous articles, I wrote about a national Consumer Price Index (CPI) that represents the spending patterns and I described how the data collected by the Bureau of Labor Statistics (BLS) calculates a regional CPI as well. Still, CPI data can be used to measure inflation between two time periods as well as determine past and future dollar value.
To calculate the rate of inflation between two time periods, calculate the percent change in the appropriate CPI index from the first period to the second period. Here is a simple example. Let’s say that the CPI for the Milwaukee-Racine area for 2005 is 172.6 and the CPI for 2010 is 186.3. The change in the CPI index is 13.7 (186.3-172.6=13.7). To compute the percentage change we take the change and divide it by the original CPI index number and multiply by 100. So the percent change would be 13.7 divided by 172.6 multiplied by 100, or 7.94%.
Now if you want to know what $100 in 2001 would be worth today, you will take the current CPI index, divide it by the 2001 CPI index and multiply by 100. For example if the 2001 CPI was 156.4 and the 2011 CPI index is 189.1, then $100 in 2001 would be worth $120.91 [(189.1/156.4) x 100 = 120.91].
To calculate the future dollar value into present day dollars, we make a similar calculation. If we the example that the 2011 CPI index is 189.1 and the forecasted CPI index in 2021 is 208.4, we will be able to estimate that $100 in 2011 will be worth $90.74 in 2021 because 189.1 divided by 208.4 multiplied by 100 will equal 90.74.
So as I described in my first CPI article, the CPI affects nearly all Americans because of the many ways it is used. Most use the CPI as an economic indicator by measuring the average change over time in the prices paid by consumers for a market basket of consumer goods and services. Still, the CPI can also be used as a means of adjusting dollar values (future or past) so people can find out what a dollar today is worth 10 years in the future, or what a dollar 3 years ago is worth today. The consumer price index has many uses and will continue to be used as a measure of the health of our economy.
- The Economy and You: What is the Consumer Price Index (CPI)? (wistatetreasury.wordpress.com)
In my last article, I described how the national Consumer Price Index or CPI represents the spending patterns for all goods and services for all urban consumers (denoted as CPI-U) which represents about 87 percent of the total U.S. population.
On a monthly basis the national, or U.S. City Average, CPI is published including the various components used to calculate the CPI. The Bureau of Labor Statistics (BLS) also publishes CPI indexes (both CPI-U and CPI-W) for the four census regions: Northeast, Midwest (formerly North Central), South, and West. Monthly indexes also are published for urban areas classified by population size: all metropolitan areas over 1.5 million, metropolitan areas smaller than 1.5 million, and all non-metropolitan urban areas. Indexes are available as well within each region, cross-classified by area population size. The BLS also publishes indexes for 27 local areas. These indexes are byproducts of the national CPI program. Each local index has a much smaller sample size than the national or regional indexes and is, therefore, subject to substantially more sampling and other measurement error. As a result, local-area indexes are more volatile than the national or regional indexes.
BLS publishes three major metropolitan areas monthly: 1) Chicago-Gary-Kenosha, IL-IN-WI; 2) Los Angeles-Riverside-Orange County, CA; and 3) New York-Northern NJ-Long Island, NY-NJ-CT-PA.
Data are published for another group of 13 metropolitan areas on a semiannual basis. These indexes which use 6-month averages (January-June and July-December) are published with the release of the national CPI for July and January respectively in August and February. These metropolitan areas that include Anchorage, Alaska and Honolulu, Hawaii, also include two Wisconsin metropolitan regions: Milwaukee-Racine,WIand Minneapolis-St. Paul, MN-WI.
Anyone can receive recorded summaries of CPI data by calling any of the following CPI hotlines:
Minneapolis-St. Paul : 612-725-3580
If you want to find more information about the CPI, the Bureau of Labor Statistics has a website that contains extensive information on the CPI including historical data and explanations of how the data is collected and compiled. Visit www.bls.gov/cpi/home.htm.
- The Economy and You: What is the Consumer Price Index (CPI)? (wistatetreasury.wordpress.com)
As described in a previous article (What is the CPI), the Consumer Price Index or CPI represents all goods and services purchased for consumption. The CPI reflects spending patterns for one of two population groups: all urban consumers (denoted as CPI-U) and urban wage earners and clerical workers (denoted as CPI-W). The all urban consumer group represents about 87 percent of the totalU.S.population. It is based on the expenditures of almost all residents of urban or metropolitan areas, including professionals, the self-employed, the poor, the unemployed, and retired people, as well as urban wage earners and clerical workers. The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is based on the expenditures of households included in the CPI-U definition that also meet two requirements: more than one-half of the household’s income must come from clerical or wage occupations, and at least one of the household’s earners must have been employed for at least 37 weeks during the previous 12 months. The CPI-W population represents about 32 percent of the totalU.S.Not included in the CPI are the spending patterns of people living in rural nonmetropolitan areas, farm families, people in the Armed Forces, and those in institutions, such as prisons and mental hospitals.
The CPI represents all goods and services purchased for consumption by the reference population (U or W) The Bureau of Labor Statistics has classified all expenditure items into more than 200 categories, arranged into eight major groups. These major groups are Food & Beverages, Housing, Apparel, Medical Care, Recreation, Education & Communication, and Other Goods and Services. Also included within these major groups are various government-charged user fees, such as water and sewerage charges, auto registration fees, and vehicle tolls. The CPI also includes taxes (such as sales and excise taxes) that are directly associated with the prices of specific goods and services. Income taxes and FICA taxes are not included in CPI calculations because there are not directly associated with the purchase of consumer goods and services. Investment spending is not used either since these expenditures are not considered consumption expenses.
So what is considered as the “official CPI” is the All Items Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average. In addition to the All Items CPI, the Bureau of Labor Statistics publishes thousands of other consumer price indexes. One such index is called “All items less food and energy”. Some users of CPI data use this index because food and energy prices can swing up or down unexpectedly (volatility), and these users want to focus on what they perceive to be the “core” or “underlying” rate of inflation. Also, the media will report CPI data in a variety of ways such as:
- 12-month percent change, not seasonally adjusted. (for example, May 2009 to May 2010 = 0.9 percent).
- Annual rate of percent change so far this year (for example, from December of the previous year to May of the next year, if the rate of increase over the first 5 months of the year continued for the full year, after the removal of seasonal influences, the rise would be 4.0%).
- 1-month percent change on a seasonally adjusted basis. (for example, from April 2008 to May 2008 = 0.6 percent).
- Annual rate based on the latest seasonally adjusted 1-month change. For example, if the rate from April 2009 to May 2009 continued for a full 12 months, then the rise, compounded, would be 6.3 percent).
** numbers contained in above example are for description purposes only and not intended to be accurate **
So when people talk about the national Consumer Price Index, they are talking about the All Items Consumer Price Index for All Urban Consumers, or the CPI-U. In my next article, I will discuss how the CPI-U is different depending on where you live.
- The Economy and You: CPI and Inflation (wistatetreasury.wordpress.com)