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Strong manufacturing value chains bolster U.S. economy

People are quick to vocalize support for U.S. manufacturing, but what are their motivations? For many, it’s a reflexive response.

Politicians like the jobs that manufacturers provide because workers are voters. City managers like manufacturing companies because they pump taxes into municipal coffers. Citizens like manufacturers because they provide jobs that might employ relatives, friends, or neighbors, whose wages are spent on goods and services in the local community, helping to maintain a decent standard of living for all. Those are all good reasons, but they really understate the impact that a manufacturing company has on the overall economy of a city, state, and even the nation.

“Manufacturing is a much more significant factor in our economy than official government statistics show, as those numbers only measure the value of the upstream supply chain and only include goods sold to ‘final demand,’” said Stephen Gold, president and CEO, Manufacturers Alliance for Productivity and Innovation, an organization dedicated to offering educational and networking opportunities to manufacturing leaders. He made this point at an expert panel session on Oct. 4 at the Fabricators & Manufacturers Association’s headquarters to kick off a celebration of manufacturing, which culminated with Manufacturing Day on Oct. 7.

He’s talking about the value chain associated with a manufacturing entity. The chain begins with the companies that supply services and parts to the manufacturer and then continues until the end product is purchased as part of some sort of consumer transaction.

Gold referenced car and truck manufacturing as an example to more clearly illustrate the depths of such value chains. Upstream activities include the mining of materials to make steel; manufacturing of that sheet steel (or importing it in some circumstances); production of components that comprise the vehicles; transporting of materials and components to assembly plants; and outsourcing professional services to assist with manufacturing, marketing, sales, and service. These are covered sufficiently in government statistics as they try to trace the impact on the overall economy, but they are only part of the story.

When the downstream value chain is considered, Gold said, manufacturing’s impact is of such significance that it’s hard to ignore. Going back to the vehicle manufacturing example, downstream activities include retail auto sales, transport and import of the finished vehicles, wholesale operations, and aftermarket services.

Using the traditional governmental approach to tracking manufacturing in the U.S., targeting only upstream activities, manufacturing represents 11 percent of overall U.S. GDP and 9 percent of employment. Gold said that when the entire value chain is tracked, including previously discussed downstream functions, manufacturing accounts for about 33 percent of GDP and employment in the U.S.

That percentage sounds fairly dramatic—until you think about the economic impact of a simple 25-person job shop in a small town. The shop purchases steel, cutting gases, welding consumables, weld prep tools, and packaging materials on a regular basis. It might even contract with finishing or other fab shops if it doesn’t have the right equipment or enough capacity. The business likely also uses local banking and marketing companies to keep the business growing. Of course, this doesn’t even begin to cover the mechanic who regularly maintains the delivery trucks or the caterer that prepares a weekly meal for the shop during a safety meeting. The financial impact of even a small fabricating shop is something of significance that can hardly be ignored.

This “multiplier” effect is often discussed when municipalities consider ponying up tax dollars to assist with the construction of some huge building, such as a football stadium. But studies suggest that these construction projects do not generate sufficient economic growth and produce a paltry amount of tax revenue—especially when you are talking about football stadiums.

The work of manufacturing companies, on the other hand, is not finite. They are open for business even when most people are still asleep. They are producing goods and good lives for people connected to these value chains.

This message is actually being shared beyond the loading dock nowadays. Politicians and educators are increasingly becoming aware of Manufacturing Day, which celebrated its fifth anniversary in early October, and are looking at manufacturing jobs not as safety nets for the students that don’t have any other plans, but for individuals who are mechanically inclined, entrepreneurial, problem solvers, or some combination. They are seeing manufacturing in a new light—as they should.

More than 2,500 organizations held Manufacturing Day events on Oct. 7. The message is getting out that manufacturing is an exciting and vital segment of the U.S. economy. The value chain promises to remain strong. It’s the one certainty in this uncertain global economy.

About the Author
The Fabricator

Dan Davis

Editor-in-Chief

2135 Point Blvd.

Elgin, IL 60123

815-227-8281

Dan Davis is editor-in-chief of The Fabricator, the industry's most widely circulated metal fabricating magazine, and its sister publications, The Tube & Pipe Journal and The Welder. He has been with the publications since April 2002.