Manufacturing Matters

The United States is beginning to gain traction in its economic recovery from the Great Recession of 2008-2009. The financial sector has attained significantly higher capital ratios. Corporations spanning over multiple industries are experiencing record levels of profitability. Even the housing and construction sectors are beginning to see signs of expansion. However, an area that has policymakers and CEOs at the edge of their seats is the re-emergence of “Made in America.” Manufacturing is experiencing an American renaissance that few expected just years ago. Lower energy costs, a result of a new-found domestic abundance of natural gas, and realized innovation capabilities are restoring business confidence in the United States and supporting a pronounced re-shoring of industrial production.

Bottom line: manufacturing matters. That is the case being made in a recent Brookings paper, “Why Does Manufacturing Matter?  Which Manufacturing Matters?  A Policy Framework.” The authors Susan Helper, Timothy Krueger, and Howard Wial highlight manufacturing’s role in the economic competitiveness of the United States. They support their claims by outlining four prominent benefits:  Manufacturing provides high-wage middle class jobs, is the nation’s major source of innovation, is export-intensive, and is a leader in the environmentally sustainable “clean economy.”

The last decade saw the most pronounced share of manufacturing job losses in US history, with the share of total employment falling from 13.2 percent in January 2000 to 8.9 percent in December of 2009. From its peak in June 1979 to its lowest point in December 2009, the United States lost 41 percent of its manufacturing jobs. However, the last two years have experienced a recovery in manufacturing activity, with manufacturing output growing at more than double the rate of GDP in 2009, and the number of jobs in the sector increasing 2.6 percent from December 2009 to September 2011.

Manufacturing is especially important to the US economy as it is a source of high wage jobs for all types of workers. In the period between 2008 and 2010, weekly earnings in manufacturing averaged $605.18, 8.4 percent higher than the non-manufacturing average of $558.29. About 48 percent of manufacturing workers, but only 37 percent of non-manufacturing workers, have no formal education beyond high school, making manufacturing an engine for boosting the middle class. The highest manufacturing wages were seen in high tech and capital intensive industries such as aerospace, computer and electronics, petroleum refining, and pharmaceuticals.

Manufacturing firms are more likely than non-manufacturing firms to innovate new products, productions, and business processes. In a 2008 National Science Foundation Business R&D and Innovation Survey, 22 percent of manufacturing companies significantly improved a good or service between 2006 and 2008, compared to just 8 percent of non-manufacturing companies.  While manufacturing accounts for 11 percent of GDP, it is responsible for 68 percent of all US domestic company R&D spending. Manufacturing also leads in R&D intensity, which measures R&D as a percentage of sales. Domestic company R&D spending is 3.6 percent of domestic manufacturing sales, compared to 2.6% of domestic non-manufacturing sales.

The US has run an annual trade deficit every year since 1976. The trade deficit has grown increasingly large in the 21^st century, exceeding over 2.7 percent of GDP in every year since 1999. Running a national trade deficit reduces employment in both the short and long term. In the short term, imports employ far fewer jobs than domestically produced goods and services, resulting in lower employment levels. In the long term, however, the trade deficit is far more dangerous as it erodes innovation potential, transferring skills and expertise abroad. Manufacturing accounts for 65 percent of all US trade and is integral to supporting the skilled workforces required to reduce the trade deficit.

Finally, manufacturing provides a disproportionate contribution to the “clean economy,” the production of goods and services with an environmental benefit. The clean economy supports 2.7 million U.S. jobs, 26 percent of them in manufacturing. Additionally, the average clean economy job contributed $20,129 in 2009 exports, twice the export intensity of the average US job.  The clean economy comprised of jobs in alternative energy technologies, energy efficiency, green and recycled products, and smart appliances.

Crafting an effective manufacturing policy will be essential to supporting the “Made in America” renaissance. Manufacturing is strengthening the United States and positioning the nation to lead the world in economic competitiveness. The data is conclusive: manufacturing matters.  It is time to get to work.