Tuesday, October 1, 2013

Upswing in U.S. Manufacturing & the Implications for Northern Utah

Tyson Smith - Economist

Recently, there have been a number of indicators suggesting that domestic manufacturing is gathering momentum (here, here and here, for example).  And while market forces have been working against keeping production in the United States for decades, we are starting to see economic incentives for “reshoring” manufacturing.  The financial advantages of outsourcing production to countries with lower labor costs still exist, but the margins for doing so are thinner than they were as recently as 10 years ago.  Furthermore, the shift toward automated production has put a higher premium on skilled labor versus inexpensive labor.

Even though the aforementioned structural shifts toward “reshoring” have encouraged increases in domestic manufacturing, the majority of the gains in output over the last 3 years have been a result of the global economy recovering from the Great Recession.  The pertinent question for us to examine is: How has the recovery affected employment in the manufacturing industry in Northern Utah? 

In the first quarter of 2007, manufacturing employment in Northern Utah – Box Elder, Cache, Davis, Morgan, Rich and Weber Counties – was 41,588 workers.  By the first quarter of 2010 that number had decreased 13 percent to 36,168.  Since then Northern Utah has recovered 2,303 manufacturing jobs, or 43 percent of the jobs lost during the recession.  But, if we dig a little deeper into the sub-industries that makeup the manufacturing sector we see a shift in the type of manufacturing jobs being filled in Northern Utah.

Figure 1 shows those counties that have recovered 100 percent of the jobs lost in manufacturing during the recession – Cache and Weber – and those counties that have yet to reach pre-recession employment totals – Box Elder and Davis.  Figure 1 also highlights the difference in the type of products being manufactured in the area.  Durable goods are products that have long life-cycles and deliver utility over time, while nondurable goods are those products that are immediately consumed or those that have a short lifespan of less than three years.  Prior to the recession durable goods made up over 72 percent of the manufacturing jobs in Northern Utah, by the first quarter of 2013 durable goods represented less than 65 percent of the industry’s employment.

You may be wondering, “why does it matter what types of goods are being manufactured?  As long as we’re adding jobs, that’s what really matters, right?”

There is some truth to that statement; adding jobs to the economy, regardless of the industry in which those jobs are added, is a positive indication of economic growth.  But, not all jobs are created equal.  In the case of manufacturing, durable goods factories generally employ higher skilled, more educated labor than nondurable goods manufacturers.  Skilled and educated employees command higher wages, and higher wages have positive “multiplier” effects on consumption and the economy.  Figure 2 illustrates the sub-industries where the most jobs have been added or subtracted in the region since the employment peak in 2007.  The average annual wage for employees in nondurable goods production was $4,541 less than those in durable goods manufacturing.

Food manufacturing added 1,356 jobs, while transportation equipment manufacturing lost 3,211 jobs.  According to the Bureau of Labor Statistics the top three occupations, as a percent of employment, in food manufacturing are: (1) Meat, Poultry, and Fish Cutters and Trimmers, (2) Packaging and Filling Machine Operators and Tenders, and (3) Food Batchmakers, which had median hourly wages of $12.42, $11.66, and $12.05 respectively in Utah in 2012.  The three largest occupations in transportation equipment and manufacturing are: (1) Team Assemblers, (2) Assemblers and Fabricators, and (3) Machinists, which had median hourly wages of $13.14, $11.39, and $21.51 respectively in Utah last year.  The median wage for transportation equipment manufacturing occupations in the U.S. was $9.36 more per hour than those in food manufacturing occupations.

Ultimately, the manufacturing industry in Northern Utah is in much better condition today than it was three years ago.  And although the types of goods currently being manufactured are not as economically favorable as they were prior to the recession, growth continues to be positive.  In fact, Northern Utah has added 1,623 durable goods manufacturing jobs since the first quarter of 2010, an increase of 7 percent, many more than the 680 jobs added in the nondurable goods industries.