The decline of manufacturing has dominated the political narrative in the United States, but there are dual plotlines within this well-known story. A few outlier industries (notably pharmaceuticals, medical devices, and computers) prop up the sector’s aggregate performance; most others have experienced flat growth or outright declines in real GDP over the past two decades.
The First Step to Fixing U.S. Manufacturing
New research from the McKinsey Global Institute analyzes firm-level financial results and finds a stark contrast in performance between the biggest U.S. manufacturing multinationals and the small and midsize firms that make up most of the sector’s establishments and employment. As a group, the largest U.S. firms have had the scale and resources to navigate the challenges of the past two decades successfully. But while the largest US firms have seen their domestic revenues grow more than twice as fast as the sector average even in the domestic market, their smaller suppliers—the firms that provide them with the materials and components they depend on—have experienced negative growth. Some tier-one suppliers to major manufacturers are performing well, but tier-two and -three suppliers in many industries are struggling.