New Study Shows Manufacturing Footprint Much Larger Than Perceived
New research by MAPI Foundation Chief Economist Dan Meckstroth, using analysis of national input–output tables by Interindustry Forecasting (Inforum) at the University of Maryland, shows that two measures commonly used by the government to quantify manufacturing’s overall footprint significantly underestimate the impact of the factory sector. While official statistics state that manufacturing’s proportion of U.S. 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 suggests.
A second popular measure, the multiplier effect, which expresses the increase in income and consumption generated by a specific economic activity, is also almost three times as high as presumed. The MAPI Foundation’s report estimates manufacturing’s value added multiplier at 3.6; this means that for every $1.00 of value added by domestic manufacturing, the sector generates $3.60 of value-added elsewhere in the U.S. economy.
MANUFACTURING’S IMPACT ON EMPLOYMENT
The study also shows that manufacturing has a much bigger impact on employment than government data suggest: 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 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 sales chain of manufactured goods sold to final demand as well as intermediate inputs for nonmanufacturing sectors’ supply chains.
“The MAPI Foundation’s revised calculations provide more comprehensive analysis of manufacturing’s total value chain,” says 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.”
The value-added of activities associated with manufacturing’s upstream supply chain for final demand, including the value of all intermediate inputs purchased for use in production, such as raw materials, process inputs, and services, totals $3.1 trillion.
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.
Goods designated for nonmanufacturing supply chains, such as gypsum and concrete products for the construction sector, provide an additional $510 billion in value-added to manufacturing’s total value chain.
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.
The traditional manufacturing multiplier of $1.40 accounts for only the economic activity created upstream and at plants, from the raw materials through the factory loading dock. The more integrative multiplier, which takes into account the value-added of the downstream sales chain as well, shows that for every dollar of domestic manufacturing value-added, another $3.60 of value-added is generated elsewhere in the economy.
In the study, Meckstroth breaks out the different components of the value stream, both in terms of employment and value-added:
- 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 demand1 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.
- Among the end users in the downstream sales chain, private consumption by households represents 57% of the total final demand value for manufactured goods. Exports and private investment, in which companies purchase goods for business purposes, each separately represent 18% of the total final demand value. The remainder of the value derives from government spending.
- Half the final purchase value in private consumption by households is generated in the supply chain (through production), while the other 50% derives from margins and services downstream of the factory floor. Margins and associated services account for a lower percentage of the final purchase value for business investment (25%), government (13%), and exports (15%).
 Government data categorize manufactured goods for final demand, i.e., goods that are sold to end users (households, businesses, and government) or exported, separately from manufactured goods destined as inputs for nonmanufacturing sectors’ supply chains.