By Kevin Hively and Ariana McBride, Ninigret Partners LLC
State of Manufacturing in the U.S.
Manufacturing remains an important part of the U.S. economy representing approximately 19 percent of the nation’s gross economic output and 10 percent of the employment base.
U.S. manufacturing employment has not recovered since the start of the Great Recession. According to the U.S. National Bureau of Economic Research (BEA), the Great Recession began in December 2007. At that time manufacturing accounted for 13.8 million jobs in the U.S. In 2015, manufacturing included 12.3 million jobs representing a decline of 11 percent from 2007 numbers. However, it’s worth noting that, while Great Recession ran from late 2007 to June 2009, manufacturing employment reached its lowest point in 2010. If we measure from the trough in manufacturing employment, total manufacturing jobs have increased by 7 percent.
However, manufacturing is not a monolithic economic sector. There is little similarity in making shoes compared to manufacturing biotherapeutics as an example. Accordingly, within manufacturing there can be wide variation in economic performance. Understanding the differences in sector activity is critical to explaining manufacturing’s economic performance.
Table 1 shows employment change by manufacturing sector. The loss of employment was quite significant in six sectors, which lost 25 percent or more of their total employment. At the three-digit NAICS level these sectors include: Textile Mills, Textile Product Mills, Apparel Manufacturing, Wood Product Manufacturing, Printing and Related Support Activities, Furniture and Related Product Manufacturing. Job losses in these sectors accounted for 41 percent of total jobs lost between 2007 and 2015. While many other sectors were also down from 2007 employment levels, several sectors saw an increase in employment particularly industries producing food and beverage products. More modest gains were made in several subsectors including Medical Equipment and Supplies, Railroad Rolling Stock, Machinery and Machine Shops.
Establishment numbers tell a more nuanced story than simply looking at employment. Establishments provide some insight into potential real estate demand Since individual establishments typically equate to employment sites. While total manufacturing establishments declined between 2007 and 2015, there is much greater variation when one looks At individual sectors. For instance, Beverage Manufacturing saw an 83 percent increase in the number of firms, largely driven by the Micro And Craft Beverage movement. Other sectors saw firm growth including Chemical Manufacturing and several subsectors of Machinery Manufacturing, Computer and Electronic Product Manufacturing, as well as electrical Equipment and Appliance Manufacturing.
Advanced manufacturing has become the watchword for economic development officials and industrial real estate developers. Defining and identifying advanced manufacturing, however, remains somewhat elusive. In the December 2014 edition of this magazine, Camoin Associates offered an overview of a series of potential definitions for advanced manufacturing.1
More recently the Brookings Institution prepared a metro level economic analysis of Advanced Industries which includes a series of manufacturing sectors.2 Table 3 identifies the manufacturing industries characterized by Brookings as advanced.
MIT’s Industrial Performance Center has spent the last several years studying the role of manufacturing in innovation and competitiveness. This center3 prepared a 2015 report on Advanced Manufacturing, which had a slightly different, narrower set of industries (table 4).
Performance of Advanced Manufacturing vs. Manufacturing Overall
Examining manufacturing thru the lens of the “advanced” sectors versus traditional sectors reveals some very interesting findings. Using the same time period as noted earlier (the beginning of the Great Recession to year end 2015) employment losses in the advanced manufacturing sector by either the Brookings or MIT methodology are down approximately 9 percent compared to 11 percent for manufacturing overall. Only six industry groups out of the 35 showed employment gains.
Notable employment bright spots in the Advanced Manufacturing sector include: Ag and Construction Equipment (+7,523 jobs); Aerospace (+2,320); Railroad Rolling Stock (+1,936) and Medical Equipment and Supplies (+2,980).
However, when looking at performance through the lens of establishment change, the message is one of stability and growth in selected sectors. The Brookings approach to defining advanced manufacturing shows in aggregate essentially no change in establishments. In contrast the MIT approach shows a net gain of establishments of 3.4 percent.
Major growth areas include Pharmaceutical and Medicine Manufacturing (+840 establishments); Semiconductor and Electronic Components (+709); Ag and Construction Equipment (+564) and Other Electrical Equipment (+432).
Key Issues and Economic Development Considerations
There are several factors economic developers should consider regarding the future of advanced manufacturing in their communities. Several are well known. Others are less obvious and create a degree of uncertainty regarding future employment levels and required manufacturing infrastructure.
Workforce availability: is a much discussed and written about subject regarding the aging of the manufacturing workforce and their relative skill levels particularly at the production level. However, what is unclear at this time is the likely impact on employment levels by type of occupation for the coming Industrial 4.0 era of digitized manufacturing systems – the internet of things applied to manufacturing. The extensive use of technology in the advanced manufacturing sector makes this intersection of workforce and digital systems particularly important.4 But as the recent GE commercials involving Owen demonstrate – the type of worker required for the advanced manufacturing sector may be very different from that working today.
Outdated buildings: For large sections of the Midwest and Northeast the deindustrialization over the last forty years has left a swath of manufacturing facilities that are likely not able to meet the needs of the advanced manufacturing due to column structure, ceiling heights, utilities and other related economic infrastructure. For communities to take advantage of the opportunities provided by advanced manufacturing a concerted effort will be required to reclaim these older industrial lands.
Industrial 4.0: What will it really mean for manufacturing? The internet of things and the potential for digitized manufacturing systems coupled with new process technologies such as additive manufacturing raise the possibility for a vastly different manufacturing world from today. Will we see pop up manufacturing plants? Hyper-specialized suppliers? Micro-plants? Or other yet to be described changes to the manufacturing value chain. Only time will tell but its clearly going to be an exciting time in the world of manufacturing.
About the Authors
Kevin Hively is the founder and President of Ninigret Partners (NP). Ninigret Partners is a business advisory and economic development consulting firm based in Providence, Rhode Island. On the corporate side, Hively has worked on business and product strategy in flexible polymers, photonics, building materials, defense electronics, marine trades, medical devices and biopharmaceuticals. His industrial and innovation sector economic development experience includes projects in industrial lands analysis for MassDevelopment, defense manufacturers diversification plan with CommerceRI, manufacturing revitalization strategy for the City of Philadelphia, Marine Industrial Park Master Plan for the City of Boston and industrial district revitalization strategies in Youngstown, Ohio and New Haven, Connecticut. He was also an invited participant to the White House Manufacturing Communities 2015 Summit. Before forming NP, he was a member of the Global Leadership Management Team for Telesis, the strategy consulting arm of Towers Perrin. Clients with Telesis included Corning, Lockheed Martin, General Dynamics, Lafarge, Astra Zeneca among others. Prior to Telesis, Mr. Hively was Director of Policy for the Governor of Rhode Island. His first professional job was working as a manufacturing capacity planner for the National Machinery Company in Tiffin, Ohio. He is a graduate of Brown University.
Ariana McBride is Director of Strategic Capacity Building for Ninigret Partners. Her principal role is to help communities develop the capacity and knowledge necessary to make decisions guiding their governance, land use and economic future. She also serves as project manager for many of NP’s most complicated multi-stakeholder projects. Before joining NP she was an associate at the Orton Family Foundation providing technical assistance on issues ranging from community engagement to research on demographic, economic and land use trends. Ms. McBride co-developed the Foundation’s Heart & Soul Community Planning approach, which emphasizes citizen engagement, collaborative decision making and local capacity building. Also, she assisted in the development of the Citizens Institute on Rural Design, a program of the National Endowment of the Arts and currently serves as a Resource Team Member. Prior to the Foundation, Ms. McBride worked for the Rhode Island Economic Policy Council where she focused on developing a place-centered approach to economic development. She is graduate of the College of William and Mary and has a master’s degree in community planning from the University of Rhode Island.