Economic Outlook for Q3 2026
Quarterly Economics Briefing–Q3 2026
Posted Date: September 28, 2026
Key Themes and Takeaways
- Since 2023, US manufacturing employment has declined, but output has risen as productivity growth has soared
- US manufacturing output in recent years has shifted to relatively high-tech and high-productivity subsectors such as computer and electronic equipment, transportation equipment, and chemical manufacturing
- In the last two decades, increased manufacturing productivity has been strongly correlated with decreased work injury rates
The New Manufacturing Revolution
In 1943, with World War II in full swing, industrial workers all across the United States were helping the war effort as factories shifted their focus to building tanks, airplanes, and numerous other wartime supplies.
In fact, by that point, nearly 40% of the US workforce was in manufacturing. That means two in five American workers were playing a role in the production process.
While the percentage of US employees working in manufacturing steadily declined in the decades that followed, total employment in manufacturing continued to grow to a peak of roughly 19.5 million workers in 1979. Since then, that number has fallen.
Today, the manufacturing sector employs just 12.6 million workers and the share of total employment in manufacturing is now less than 8%. These numbers are projected to continue declining over the next decade.
You might think that a three-year decline in employment would be reflected in production levels. But it’s quite the opposite. US total manufacturing output has not only grown over the past three years but outpaced growth in the overall economy.
That’s because American manufacturing has become more efficient and high-tech. In 1943, several workers would be needed to handle a heavy steel plate, for example. Now, robots can lift, flip, and hold dense components without breaking a sweat. Fewer employees can now produce more output, a trend that we suspect will continue in the years to come.
In this brief, we will explore how domestic manufacturing has changed, the implications of higher manufacturing productivity for the economy, and how these trends have impacted workers compensation results.
Behind the Jobless Rise of American Manufacturing
In the decade between the Great Recession of 2008–2009 and the COVID-19 recession of 2020, American manufacturing followed a simple relationship: employment and real output increased in tandem. It’s a simple relationship that doesn’t require a degree in economics to understand: having more workers to make things allowed domestic manufacturers to make more things.
In the immediate aftermath of the pandemic, this relationship largely continued to hold. That is until the beginning of 2023. Then something interesting happened.
In January 2023, manufacturing employment reached its post-Recession peak of just over 12.9 million workers, and then began to decline. Over the next three years, the industry shed over 300,000 jobs until stabilizing in early 2026.1
1 Average weekly hours worked in manufacturing were relatively stable between 2023 and 2025 before rising slightly in 2026. Overall, the decline in employment in the last few years is closely matched by a decline in aggregate hours worked.
During the same period, however, real manufacturing output (the quantity of goods produced) not only continued to grow, but it even outpaced the growth rate of the overall economy.
This picture of domestic manufacturing since 2023 is a clear example of productivity improvement: doing more with less. Output grew while the number of workers producing that output shrank. Productivity growth in the economy is sometimes difficult to measure and often occurs slowly, over long periods of time. Here, however, the data shows a marked increase in manufacturing productivity over a span of just three years.
A New Look for an Established Industry
Over the past two decades, a sizable shift has occurred in the makeup of the domestic manufacturing industry. Chemical products, transportation equipment, and computer and electronic products together accounted for roughly 50% of all manufacturing output in 2025, compared to around 37% for those same sectors in 2005.
Notably, the share of manufacturing employment in these three subsectors was little changed over the same timeframe. In fact, over the past two decades, the share of manufacturing employment has only meaningfully changed in one subsector: food and beverage and tobacco products, which grew from a 12% share in 2005 to 17% in 2025.
The long-run drivers of these changes are well-known. Labor-intensive production has been offshored, while domestic production has become more high-tech, with machinery and automation leading to fewer workers per dollar-valued unit of output. And the data shows that this trend has accelerated over the past few years.
A simple measure of manufacturing productivity, output per 1,000 workers, has accelerated markedly since 2023 after a long period of slower growth following the 2008–2009 recession. With continued advancements in technology, including robotics and artificial intelligence, we speculate that this accelerated trend in manufacturing productivity will continue in the coming years. Manufacturing output is likely to continue to grow, contributing to overall economic growth; however, that growth may not translate into increasing manufacturing employment.
Is a More Productive Worker a Safer Worker?
Over the past 20 years, work has also gotten safer. As the Survey of Occupational Injuries and Illnesses shows, manufacturing has a slightly higher injury rate than the all-industry average, but has experienced a similar decline in injury rates as other industries over the past two decades.
This trend, perhaps not too interesting on its own, becomes noteworthy when combined with a simple measure of productivity. The chart below shows the injury rate and an inverted version of real GDP per worker, both normalized for changes since 2005.
From 2005 to 2009, manufacturing output per 10,000 workers grew sharply and injury rates fell sharply. Between 2010 and 2020, productivity growth slowed, and so did the pace of decline in injury rates. Over the past several years, as productivity has accelerated again, injury rates appear to be falling more quickly again. This strong relationship leads us to believe that some of the same factors that have contributed to accelerated productivity may have also contributed to an increase in workplace safety.
As we anticipate that accelerated manufacturing productivity may continue with advances in technology, robotics, and artificial intelligence, we also speculate that injury rates in the industry may also continue to fall at an accelerated pace.
Conclusion
Since the beginning of 2023, the manufacturing industry has seen strong output growth combined with a sizable decline in employment. Productivity has accelerated in the sector as the share of output has increasingly shifted to computer and electronic products, chemical products, and transportation equipment, which have lower shares of employment than their output might suggest. As domestic manufacturing continues to shift and take advantage of new technologies and automation techniques, we may continue to see strong output growth in the industry without accompanying employment growth.
Over the past two decades, periods of accelerated productivity growth in manufacturing have been highly correlated with periods of accelerated decline in injury rates for the industry. We therefore speculate that workplace safety will continue to improve at an accelerated pace as the industry continues to use more technology and become more automated.