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US Manufacturing Sees Growth in Production

The ongoing effects of recent US economic recessions are still being felt in many sectors including (and perhaps particularly) the forest products industries. While every industry faces its own challenges, what is the current state of overall manufacturing and logistics in the US? The answer may surprise you.

US manufacturing production grew 11 percent since the “dot.com” bust of 2000-03, and the ensuing economic turbulence of the 2001 and 2007-09 recessions, according to a study recently released by the Ball State Center for Business and Economic Research (CBER) and Conexus Indiana. The study, titled Manufacturing and Logistics: A Generation of Volatility & Growth, is available for digital download. While its focus centers on Indiana and its surrounding states in the Midwest, it includes data about overall US manufacturing (which includes wood products) and logistics.

"According to folklore, this has been a terrible generation for manufacturing and those who move goods," said CBER director Michael Hicks, George and Frances Ball Distinguished Professor of Economics and Business Research. "That isn’t really what the data say. Indeed, 2015 was a record manufacturing production year in inflation-adjusted dollars. While 2016 fell just short with some weakness in the first and second quarter, 2017 looks to be a new record year.”

The report notes that statistics clearly indicate that the 2001 downturn, and the “Great Recession” of 2007-09, had deep and lasting effects. “Because business cycles predominately affect purchases of business capital investment and consumer durables, manufacturing production saw significant declines through 2000 and 2008 and 2009,” according to the report. “Dips in manufacturing GDP of 8-12 percent occurred over both business recessions, concentrated in durable goods sectors and geographically across the county.” Yet by 2015, according to data from the US Bureau of Economic Analysis, adjusted US manufacturing GDP had reached US$2.20 trillion (see figure.)

The logistics industry (which consists largely of transportation and warehousing) is not as cyclically sensitive, so the effects were not as profound. “Growth in trade, along with continued movement of non-durable goods and household travel, mitigated the effect of reduced demand for manufactured goods on the logistics sector. Total GDP for transportation and warehousing saw only about half the proportional decline than did manufacturing over the Great Recession,” states the report.

"Most of the confusion about manufacturing and logistics is due to declining employment over the past generation," Hicks said. "The fact is, manufacturing firms have become very lean, and productivity growth means more goods produced with fewer workers."

Three factors contribute to a decline in employment: the workforce is better educated and trained, increasing productivity; mechanization has displaced some workers; and improved processes, such as Lean Six Sigma and other management methods, have increased manufacturing production, according to the study’s authors.

Since peak manufacturing employment in 1979, the US has lost approximately 7.5 million manufacturing jobs but gained more than 9 million jobs in trade, transportation, and utilities, the broadest measure of the logistics industry.

"Trade and productivity growth shifts job opportunities to other places and other sectors even as employment grows," Hicks said. "We are at peak US employment right now."

The 2017 Manufacturing and Logistics Report Card for Indiana, 2017 Manufacturing and Logistics Report Card for the United States and Manufacturing and Logistics: A Generation of Volatility & Growth were written by Michael Hicks, George and Frances Ball Distinguished Professor of Economics and Business Research, Miller College of Business, and Srikant Devaraj, CBER’s research assistant professor. The reports can be downloaded from the CBER website.

 

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