Driving the highways and byways of America, it's easy to conclude the country is no longer the manufacturing powerhouse it once was.

Hulking carcasses of the industrial age--former power plants, foundries and textile mills--now house theme restaurants, discount retail outlets and Internet-company office suites. The people who worked in these symbols of an earlier age are gone, too, a million fewer employed in manufacturing today than at the end of the 1980s. But there's another way to take the pulse of an economy. As the chart at the right shows, when measured by its productivity (output per hour of work), the industrial economy is actually a picture of good health. In fact, according to government data analyzed by the National Association of Manufacturers and summarized in a recent report, manufacturing might be the most productive sector of the economy.

For example, as the economy was recovering from recession in 1992, manufacturing productivity grew at a 5.1 percent annual rate, compared with the national economy's 3.1 percent rate. So far this year manufacturing productivity is running at a 5.6 percent rate, compared with 2.4 percent overall. Throughout this decade, the growth in manufacturing productivity has eclipsed that of the economy at large.

In some respects, it is easier to measure productivity in manufacturing than in the services sector. The output, be it a computer or a barrel of oil, is more easily counted than, say, a lawsuit. And increases in quality, which factor into the value of the goods produced, are also easier to quantify with manufactured goods than with services.

But what is indisputable is that manufacturers have learned to do more with less--and more efficiently than any other sector of the economy. The findings are significant, in that without gains in productivity, the economy would not be able to enjoy its high rate of employment without generating inflationary pressures. And jobs in manufacturing tend to pay more and create a greater ripple effect throughout the economy than those in service industries.

"Other sectors generate the economy's employment," said NAM economist Gordon Richards. "Manufacturing generates its productivity."

In the past, with the advent of baby boomers into the economy, growth in economic output has come from the addition of greater and greater numbers of workers to the labor force. But with the impending retirements of this generation of workers and a slowdown in the rate of new entrants into the work force, the economy will have to rely on additional productivity to generate increased wealth.

"As the labor supply becomes exhausted, more of the growth has to come from capital formation and technological advance," Richards said.

The heightened efficiency of manufacturing can be seen in its employment trend. In 1979, there were 21 million workers employed in manufacturing out of a total non-farm labor force of 89.8 million. That equates to 23 percent of the work force--a little less than one in four workers employed making things. Today, there are about 18.4 million people working in manufacturing out of a much larger work force of 129 million. That's roughly 14 percent of the work force.

Yet, manufacturing output has risen in this time frame. Throughout the 1990s, manufacturing has contributed 29 percent of the growth in gross domestic output. In the 1980s, that contribution was 21.5 percent.

KeyCorp economist Ken Mayland says the story of manufacturing's renaissance in the past decade is often overlooked because of the way people tend to think about the economy. When jobs are lost, the assumption is that a sector is in decline. But often it is just a sign of transition to a new state.

"People equate a loss of manufacturing jobs to deindustrialization," he said. "But I would say manufacturing is as important to the U.S. economy today as when anybody thinks of the golden days of manufacturing, maybe more important."

Richards and other manufacturing experts explain the productivity of manufacturing by pointing to investments in new equipment and technology that have streamlined manufacturing processes and replaced workers with machines. But the experience of Murray Gerber shows it has often been a case of just finding simpler and cheaper ways for people to do their jobs.

Gerber is the former owner of Prototype and Plastic Mold Co. in Middletown, Conn. For years, he has lectured state legislators and fellow manufacturers on the virtues of just-in-time inventory methods and other time- and cost-saving techniques. A decade ago, his small business, making specialized plastic moldings for corporate customers in the aerospace and medical products industries, had 100 workers and did $5 million in annual sales. Today, Gerber's former company (he sold it a month ago but has not yet left) does twice as much business with about 20 fewer employees.

At Prototype and Plastic Mold, the productivity improvements came from redesigning work processes, reducing the number of steps involved in making new molds, eliminating waste material and reducing the amount of inventory of finished products. In place of a person who scheduled the various manufacturing tasks, employees now decide themselves when to adjust their parts inventory and begin the next assembly step. In place of a person to clean the entire floor space of debris, Gerber drew lines around work cells and now the workers themselves keep their area tidy.

Gerber credits the "very alarming wake-up call" this and other manufacturing companies received in the 1980s when American-made products were deemed inferior to their foreign competition. That launched more than a decade of reengineering and restructuring and ushered in an era of highly efficient manufacturing in the United States.

Along the way, the less efficient manufacturers were driven out of business, a factor that helps explain the greater productivity of those that remain.

"The kind of work that takes a lot of labor has been shifted out of the U.S.," said Robert Hall, a business professor and manufacturing expert at Indiana University.

The manufacturing that does remain is that which requires workers with higher skills producing items of greater economic value.

"In place of steel, we produce a hell of a lot of microprocessors," Mayland said. "It's all part of an evolution to higher-value manufacturing."