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When tech-driven innovative products such as medical devices are removed from the picture, the growth rate of real value added in the rest of the sector has fallen. (Credit: McKinsey & Company)

In the past two decades, output growth in U.S. manufacturing has declined, but the largest firms have managed to thrive, notes a new report form McKinsey & Company. The tech sector, however, including medical device manufacturing, has posted rapid growth in value added since the 1990s.

Despite the loss of global market share over two decades, manufacturing continues to punch above its weight, especially in the 500 counties where it is still the main economic activity. According to the report, “Making it in America: Revitalizing US Manufacturing,” manufacturing makes up 9 percent of employment and 12 percent of US GDP but drives 35 percent of productivity growth, 60 percent of exports, and 70 percent of private-sector R&D. The United States remains the world’s second-largest manufacturing nation, and its industrial diversity is unmatched among advanced economies.

“The United States posted a surge of manufacturing growth in the 1990s. But since the late 1990s, it has experienced a slowdown in output and value added (outside of computers, pharmaceuticals, and medical devices),” according to the report.

As data, connectivity, and smart machines merge the digital and physical worlds, technology is creating avenues for US manufacturers to improve their productivity, agility, and competitiveness, says the report. New design tools can improve speed to market, creating rapid prototypes and simulations to validate processes before build-out. Internet of things sensors can combine with analytics and advanced robots to run flexible, autonomous factory operations. Digital threads can connect firms with suppliers and customers, improving coordination and turning data-driven insights into new revenue.

The report notes, “Real value added in US manufacturing is no higher today than it was a decade ago and that the “sector’s real value added is sharply lower when tech products, pharmaceuticals, and medical devices are excluded.”

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