Conventional metrics grossly underestimate U.S. manufacturing footprint, says study

It's well known that the economic reach of manufacturing is very long, but new research by Chief Economist Dan Meckstroth of the Manufacturers Alliance for Productivity and Innovation Foundation (MAPI; Arlington, VA) shows that the manufacturing footprint is much larger than originally perceived. Using analysis of national input/output tables by Interindustry Forecasting (Inforum) at the University of Maryland, Meckstroth shows that two measures commonly used by the government to quantify manufacturing's overall footprint significantly underestimate the impact of the factory sector. The MAPI Foundation is the research affiliate of the Manufacturers Alliance for Productivity and Innovation.

While official statistics state that manufacturing's proportion of U.S. gross domestic product (GDP) stands at about 11%, this new research reveals that manufacturing actually accounts for about one-third of GDP, three times the impact that a simplistic analysis of the data suggest. The MAPI Foundation undertook the research because the official methodology for calculating manufacturing's impact does not capture a large portion of the value driven by manufacturing activity. Among these, official manufacturing statistics are based on information collected at the "establishment," or plant, level, as opposed to the "firm" level. As a consequence, numerous manufacturing-related activities, including corporate management, R&D and logistics operations, are not included within the NAICS codes for manufacturing. In addition, government calculations include only the creation of value in manufacturing's upstream supply chain and at plants. This ignores associated activities in the downstream chain of manufactured goods sold to final demand as well as intermediate inputs for the nonmanufacturing sectors' supply chain.

"The MAPI Foundation's revised calculations provide more comprehensive analysis of manufacturing's total value chain," said Meckstroth. "Economic statistics say that manufacturing industries are of only minor importance, but our research shows that they lie near the center of a substantial and complex value chain, and that the conventional measurement of manufacturing's footprint is grossly underestimated."

For example, while the factory workforce accounts for 9% of total full-time employees in the nation, an additional 23% of the nation's workers are linked to manufacturing, making the total footprint equal to 32% of the U.S. workforce. For every manufacturing job, there are 3.4 full-time jobs created elsewhere in the United States to support manufacturers' efforts, the study found.

Another key finding of the study is that the traditional manufacturing multiplier of $1.40 accounts for only the economic activity created upstream and at plants, from raw materials to the factory loading dock. A popular measure, the multiplier effect, which expresses the increase in income and consumption generated by a specific economic activity, also is almost three times as high as presumed. The more integrative multiplier, which takes into account the value-added of the downstream sales chain, shows that every dollar of domestic manufacturing generates $3.60 of value-added elsewhere in the U.S. economy.

The value-added of activities associated with the downstream sales chain for final demand, including transportation, wholesaling, retailing, rental, leasing, insurance, professional services, maintenance and repair, totals $3.6 trillion. The (up and down) value stream of domestic manufactured goods for final demand plus the value of goods designated for nonmanufacturing sectors raises manufacturing's total footprint in the economy to 32% of GDP.

Manufacturing's impact on the workforce is much greater than previously suggested, as well. Almost 39 million full-time-equivalent employees work in the value chain of manufactured goods for final demand. Upstream businesses related to manufacturing destined for final demand employ 15,390,000 workers and downstream businesses in this value chain employ 23,464,000 workers. Another 3.2 million full-time-equivalent employees work in the value chain for goods destined for the nonmanufacturing supply chain. Adding this number to the employees in the value chain for final demand equals 42,025,000 employees, or 32% of the total national workforce.

To read the entire study, go to the MAPI website.