A Strong Manufacturing Sector Fuels Economic Growth

November 28, 2016

Some analysts consider manufacturing is less important to economic growth than it once was. In this thinking, strengths elsewhere more than outweigh weaknesses in the manufacturing sector. After all, they suggest, manufacturing accounts for almost 12% of GDP last week, down sharply from 31% 50 years ago, and employment in the sector is a smaller share of the total pie.

 

Yet, such flawed analysis undersells how important manufacturing is for overall economic growth. Manufacturers contributed nearly $2.2 trillion to the U.S. economy in the most recent data, demonstrating how intertwined manufacturing firms are with the rest of the economy. Indeed, business leaders often tell me about the hundreds or—for larger firms—thousands of suppliers they interact with every single day.

 

Manufacturing has the highest multiplier effect of any major sector. For every dollar spent in manufacturing, another $1.81 is added to the economy, and for every manufacturing worker, there are another four employees hired elsewhere. Indeed, shifts in manufacturing can affect the larger economy significantly. More importantly, millions of Americans rely on manufacturing as a path to the middle class. There are 12.3 million manufacturing workers, with average compensation of $81,289 in 2015, including pay and benefits.

(AP Photo/Carlos Osorio)

 

Manufacturing continues to be one of the most important drivers regarding the health of the U.S. economy. The broader U.S. economy will not be able to grow robustly without a rebound in manufacturing. Faster real GDP growth is possible, but not until we get manufacturing humming along strongly once again.

 

With that said, a number of factors have hampered manufacturing growth over the past two years, including a strong U.S. dollar, slow economic growth abroad, low commodity prices and economic and political uncertainties. As a result, manufacturing growth has often lagged behind stronger activity in other segments of the economy, particularly in the service sector. Along those lines, manufacturing production saw no growth on a year-over-year basis in September, and business leaders in the sector are cautious in their economic outlook.

 

Moving beyond the current challenges, the prospects for manufacturing are bright. The United States is seen increasingly as a viable location for global manufacturers, with foreign direct investment in the sector exceeding $1.2 trillion in 2015, an all-time high. In addition, new technologies have the ability to alter radically the way manufacturers innovate, produce and sell their products moving forward, improving efficiency and competitiveness. In fact, manufacturing today is more globally competitive.

 

Still, it is not a coincidence that sluggish economic growth has coincided with softness in manufacturing demand and production. That is why we need pro-growth manufacturing policies that will fuel the sector and drive economic growth.

 

That may go without saying to many who work in the manufacturing sector, but it bears repeating: Pro-growth policies will ensure manufacturing’s best days are ahead, lifting economic prospects for everyone.

 

Moutray, Chad (2016). "A Strong Manufacturing Sector Fuels Economic Growth". Retrieved from http://www.forbes.com/sites/realspin/2016/11/21/a-strong-manufacturing-sector-fuels-economic-growth/#72b3477c18be.

 

 

 

 

 

 

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