#572 – Manufacturing’s Economic Impact: So much bigger than we think

Last week we shared with you a report from MAPI (Manufacturers Alliance for Productivity and Innovation) that reviewed the true economic impact of manufacturing on the U.S. economy. This week, we want to share the summary that further details the findings of the study.

MAPI Finds Manufacturing’s Footprint is 1/3 of GDP
Friday, February 19, 2016; Dan Meckstroth

Manufactured goods are ubiquitous at home, in transit, and at work, but the narrow definition of manufacturing industries in national statistics implies that the sector is of only minor importance to economic activity. The traditional finding is that manufacturers’ proportion of gross domestic product (GDP) is only about 11% and manufacturing’s share of economy-wide full-time equivalent employment is just 9%. Since this excludes manufacturing activities such as research and development, corporate management, logistics operations, and advertising and branding, those figures are merely the tip of the iceberg.

The MAPI Foundation finds that manufacturing’s footprint is much larger than merely the value-added at the factory loading dock. Manufacturing plant activities lie near the center of a substantial and complex value chain that is composed of an upstream supply chain that gathers materials and services and a downstream sales chain that moves goods to market and sells and services goods. Manufactured goods are also intermediate inputs in nonmanufacturing industries’ supply chains.

The MAPI Foundation’s major findings:

• * The manufactured goods value chain plus manufacturing for other industries’ supply chains accounts for about one-third of GDP and employment in the United States.
• * The domestic manufacturing value-added multiplier is 3.6, which is much higher than conventional calculations. For every dollar of domestic manufacturing value-added destined for manufactured goods for final demand, another $3.60 of value-added is generated elsewhere.
• * For each full-time equivalent job in manufacturing dedicated to producing value for final demand, there are 3.4 full-time equivalent jobs created in nonmanufacturing industries.
• * Most (54%) of the value-added in manufactured goods destined for final demand is from the downstream sales chain; the upstream supply chain accounts for the remaining 46%.
• * Domestic manufacturing accounts for only 22% of the value chain of manufactured goods for final demand. Nonmanufacturing value-added is 53% and imports are another 25%.
• * 60% of manufacturing imports ($1,024 billion) are final goods; these directly enter the downstream sales chain. The other $694 billion of manufacturing imports enter the value stream in the upstream supply chain of domestic manufacturing.
• * Relative to other industries, manufacturing is efficient in delivering value-added. It takes about 5.8 full-time equivalent manufacturing jobs to achieve $1 million in value-added, compared with 7.7 for both transportation and services and 16.9 for retail trade.

Full report