Industrial Insight

We are big | February 22, 2016

Manufacturing’s Economic Impact: So Much Bigger Than We Think
Publication Date: February 16, 2016
Author: Stephen Gold

….

Official national statistics state that manufacturing’s proportion of GDP—its annual value-added divided by the value of all goods and services produced in the country—stands at about 11%. The U.S. Department of Commerce finds the total requirement manufacturing multiplier is around 1.4.

Both figures grossly understate manufacturing’s impact….

Why is the government’s estimate so misleading?…

More substantively, official manufacturing statistics are based narrowly on information collected at the “establishment”—or plant—level, as opposed to the “firm” level. That means numerous manufacturing-related activities, such as corporate management, R&D, and logistics operations, are not included within the NAICS codes for manufacturing (31-33) when they are located separate from plants. For example, Commerce classifies the work of senior executives in Briggs & Stratton’s headquarters as “management of companies and enterprises” (NAICS 55), Caterpillar’s R&D centers as “professional, scientific, and technical services” (NAICS 54), and Stanley Black & Decker’s warehouses as “wholesale trade” (NAICS 42). …

Final demand goods are those destined for an end user; they are either exports or goods sold to households, businesses, and government. The data for final demand goods do not include intermediate inputs for nonmanufacturing supply chains, such as gypsum and cement bound for the construction supply chain or chemical fertilizer used in the agriculture supply chain. Adding this data provides a more holistic and accurate perspective, because but for the production of all of these manufactured goods, no value would be generated in manufacturing’s upstream supply chain and downstream sales chain, or in supply chains of other sectors….

Combined, the (up and down) value stream of manufactured goods for final demand equals $6.7 trillion….

In all, manufacturing’s total impact on the economy is 32% of GDP.

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