Surprise! California Is Still The Largest Contributor To The U.S. Manufacturing Industry; Productivity Growth In The State Industry Eclipses Performance In The Nation
Despite California’s famously high cost of living, the state remains the largest contributor to the U.S. manufacturing industry in terms of both employment and output. A comprehensive new analysis examines the manufacturing industry in California and reveals some surprising findings that contradict the popular perception that the industry and its workers have been priced out of the state.
The report, produced by Beacon Economics LLC and commissioned by California Manufacturing Technology Consulting (CMTC), found that the state’s manufacturing output has exceeded the national rate by 83% since the late 1990s. And contrary to widespread belief, California’s share of manufacturing jobs in the United States has ticked up slightly since 2000, currently standing at 11%.
While the study indeed points to high housing and other costs as a serious problem in attracting and retaining workers, it also shines a light on remarkable productivity gains that the state’s manufacturing sector has achieved. Notably, these output gains, as well as lesser gains in manufacturing employment, have been primarily driven by the state’s high-technology subsectors while lower-technology, lower-paying subsectors have declined.
“It’s a well-understood trend that traditional manufacturing jobs in sectors such as apparel and food processing have diminished over the past several decades in California due to the state’s exceptionally high land and living costs,” said Taner Osman, Research Manager at Beacon Economics and the report’s lead author. “But the headlines we read miss the striking advances that have occurred in output as a result of innovations, improvements, and investments in production processes – particularly in high tech.”
Additionally, the analysis highlights the fact that the trend of fewer jobs, but higher output, is also reflected at the national level. In the United States as a whole, manufacturing employment has fallen by 32% since 1990, while nominal output has increased by almost 40%, according to the report. Nationally, this dichotomy is being driven by increases in labor productivity, particularly in durable goods manufacturing.
- In the United States today, each hour of manufacturing labor produces twice the value of output it did in 1990.
- California is still the largest contributor to the U.S. manufacturing industry – both in terms of employment and output. As stated earlier, the productivity growth in the state’s manufacturing sector has eclipsed the performance of the industry nationally by more than 80% since the 1990s.
- The value of production in the U.S. manufacturing industry has more than doubled in nominal terms since 1990, reaching nearly $4.5 trillion in 2019. In 2020, manufacturing accounted for 11.7% of U.S. GDP.
- The long-term decline in manufacturing employment is evident: Approximately 5.7 million manufacturing jobs were lost between 1990 and 2020 in the United States, reducing employment in the industry by nearly one-third.
- California is the largest state contributor to national manufacturing GDP, representing 14.5%, followed by Texas at 10.9%. Further behind are Ohio, Illinois, Indiana, North Carolina, Pennsylvania, and Michigan.
- The manufacturing industry’s ‘value added’ in California has grown three-times the national rate, increasing almost 176% since 1997, compared to 51% in the nation overall.
- There are currently 53,000 job openings in California’s manufacturing sector. If the state is unable to address its housing affordability crisis, parts of the industry will continue to leave.
- Of California’s 21 manufacturing subsectors, 11 gained jobs and 10 lost jobs between 2010 and 2020. The most jobs were added in transportation equipment manufacturing. The largest job losses occurred in apparel manufacturing.
- California is competitive in high-technology industries such as semiconductors, computers, peripherals electronic components, communications equipment, and sophisticated radar and satellite instrumentation. Despite losing employment long term, the state is also competitive in lower-technology industries, such as beverages, machinery, and food processing due to productivity advancements.
- The pandemic has exposed the fragility of global supply chains and created clear opportunities and incentives to bring production closer to home. There is now the very real prospect of firms regionalizing supply networks, given the vulnerabilities that exist in different parts of the supply chain.
- California’s key competitive advantage will be to develop and retain workers with cutting-edge skills. The state’s manufacturers require a workforce with the specialized skillsets needed for working with more advanced technologies. Maintaining such a workforce will lead to an increase in productivity and competitiveness. State policy should target and support the types of training that workers need to retain their competitive edge.
For more information, download CMTC’s free California manufacturing infographic.
Despite COVID’s Upheaval, California Manufacturing Technology Consulting’s (CMTC) Clients Continued to Boost Revenues, Cost Savings
CALIFORNIA MANUFACTURING IMPACT FACT SHEET
In the face of a disruptive and unprecedented year of health mandated shutdowns across the manufacturing industry, California Manufacturing Technology Consulting® (CMTC), the Manufacturing Extension Partnership (MEP) Center in California, continued to help firms in the state grow their revenues, retain jobs, and increase cost savings. Amid industry losses on a macroeconomic scale due to the COVID-19 pandemic, CMTC remarkably still supplied hundreds of California manufacturing businesses with services that boosted their annual performance in 2020, according to a newly released economic impact analysis.
The report, produced by Beacon Economics and commissioned by CMTC, found that impacts stemming directly from their MEP-related work included over $159 million in increased sales and over $441 million in retained sales in 2020. The program also directly resulted in the creation of 1,777 manufacturing jobs in the state and the retention of more than 6,000 jobs.
“Manufacturing plays a vital role in California’s larger economy which makes these results and CMTC’s overall function so welcome and so critical,” said Mazen Bou Zeineddine, a Research Manager at Beacon Economics and the report’s lead author. “The success CMTC had in supporting the state’s manufacturing businesses during an immensely challenging year is a true testament to the MEP program’s ingenuity and long-term effectiveness.”
Given the workforce challenges, ever-evolving technological advances and changes in capital investment, CMTC has enabled small and medium-sized manufacturers to successfully cope with the changing manufacturing landscape, according to Bou Zeineddine.
Other key impacts stemming from the California MEP in 2020 includes a significant contribution to the California economy with client impacts generating $5.9B in total economic output. CMTC’s client impacts not only supported manufacturing jobs but the multiplier effect created or retained another 11,665 non-manufacturing jobs.
“Given all that manufacturing was faced with in 2020, CMTC was able to find ways to assist manufacturers during an extreme time of need,” said Bou Zeineddine.
For more information and findings from the report, download CMTC’s California manufacturing impact fact sheet.
The Road Ahead for Manufacturing Amid the Coronavirus
October is National Manufacturing Month, a time to recognize the innovations of the manufacturing industry – which plays a significant economic and jobs role in the Inland Empire.
By: Anthony Turner, Greater Los Angeles and Inland Empire Market Executive of Global Commercial Banking at Bank of America
With manufacturers of every size and across every industry weathering unforeseen economic forces rising from the coronavirus pandemic, it seems timely to address these challenges and how the industry can overcome them.
Demand for products has been upended, relationships with suppliers and customers are being tested and liquidity issues have multiplied. Some manufacturers have had to rapidly increase the production of goods, such as grocery items, household products and essential medical and protective equipment. Other industries, like aerospace, automotive and energy, have seen a sharp decline in demand. As of August 2020, manufacturing jobs were down 11.1 percent compared to August 2019 due to ongoing shutdowns and an overall decrease in demand.
While employment in the region remains below pre-pandemic levels, health-mandated countermeasures also continue to restrict many businesses’ ability to operate at capacity, especially those in industries that require workers to operate in close proximity, including the manufacturing industry.
In addition to the economic toll, manufacturers must consider the health and safety of their people. They need to find a balance between keeping factories running and not subjecting employees to unnecessary health risks. The pandemic has highlighted the need for manufacturers to prioritize public health, including employee health, in addition to taking forward-looking measures such as retooling technology systems to handle supply chain issues, inventory management and shifts in production processes.
Employee Health and Well-Being
To protect employees from health risks, manufacturers should consider leaving extended periods between shifts and conducting remote handoffs, which helps reduce unnecessary face-to-face interactions. Some are monitoring employees’ health by checking temperatures, setting up temporary health centers and even hiring onsite medical professionals to test employees.
Because these decisions are both critical and unprecedented, sharing experiences is key. Industry leaders should engage in continuing, open dialogue to address shared issues, like frequency of employee health screenings, steps to take if an outbreak occurs and best practices for addressing other employee-centric issues. These considerations are vital and working with industry colleagues can help companies identify and implement the best solutions.
Manufacturers should also consider the economic health of employees. While short-term challenges can be acute, manufacturers should think about how they want to be positioned as a business in the long-term and consider the importance of their employees. Given how challenging it can be to acquire good talent, many are looking at how to maintain their workforce, by temporarily freezing or cutting pay rather than laying off employees. This can help to build loyalty and retain talent, putting companies in a stronger position when conditions improve.
Short- and Long-term Business Transformations
In response to declining demand for certain products, some manufacturers have quickly pivoted to meet new demands. Hockey mask companies are making face shields, fashion designers are selling masks and distilleries are producing hand sanitizer. This is a smart short-term strategy for those who can retool existing facilities, and it allows manufacturers to reallocate resources toward most pressing needs. It also enables them to consider longer-term objectives in an environment where future demand is uncertain.
To guide business strategy and gain a window into future demand, it’s also essential that manufacturers carefully track orders, inventory and other internal data. For some companies, this will require upgrading or acquiring analytics systems that can deliver more robust predictive models. Manufacturers should also closely watch indicators including national retail sales numbers, housing stocks, building permit numbers and consumer confidence levels.
With fluctuations in demand, inventory challenges and sharply reduced production, many businesses are facing liquidity issues and other financial concerns. As they navigate the path forward, manufacturers can consider implementing more systematic credit checks to ensure customers can pay for orders or requesting advance payment terms. Banking partners can offer insights into best practices for credit management, working capital and cash management. Some of these practices include running sensitivity models and stress tests to project how long cash will last. While companies may not need relief immediately, setting thresholds can be helpful for knowing when it’s time to seek assistance.
While manufacturers currently face a host of challenges, with this industry as a key driver of the region’s economy, there are opportunities we should consider now, which can benefit companies in the long term. Policies that retain top talent and build loyalty; technology and process changes that make companies nimbler and more adaptive; and financial practices that lend greater insight into risk can help manufacturers develop a stronger business foundation for the long-term.
Entrepreneurs Wanted: Apply Now for Walmart’s 7th Annual Open Call for U.S.-Manufactured Products
Company adapts annual event to virtual format, invites entrepreneurs to pitch new, niche and innovative products via virtual meetings scheduled for October 1, 2020
July 20, 2020 – The application process for Walmart’s seventh annual Open Call is open and the company invites entrepreneurs dreaming of landing their U.S.-manufactured products on Walmart shelves to apply for the opportunity to meet with Walmart buyers on October 1, 2020 via virtual pitch meetings.
The deadline to apply to participate in this year’s Open Call for U.S.-manufactured products is August 10. The application and additional information about the event are available via Walmart-jump.com.
The event, scheduled for October 1, kicks off Walmart’s celebration of U.S. Manufacturing Month and will include similar programming to previous years. In addition to one-on-one pitch meetings with Walmart buyers, participants will have an opportunity to hear directly from Walmart executives and learn from company leaders during smaller breakout sessions designed to inform, empower and encourage supplier-hopefuls.
“During this year of unprecedented challenges for U.S. businesses, Walmart remains committed to sourcing products made, grown, or assembled in the U.S. By Investing in products that support American jobs, we are able to bring new exciting products to our customers, support new jobs in our local communities and invest in small business across the country.” said Laura Phillips, Walmart senior vice president for Global Sourcing & US Manufacturing. “Walmart’s Annual Open Call event gives us a unique occasion to identify new suppliers who can meet our customers’ needs with unique and innovative products manufactured or produced in the U.S. For the first time, this year’s Open Call event will be virtual, enabling even broader participation from potential new suppliers. We know how important this opportunity is for many small businesses, especially this year, and we are looking forward to seeing the new product submissions and meeting potential new suppliers.”
“Walmart took a chance on us last year and gave us a huge opportunity,” said Sean Lee, General Manager of Sweety’s Ice Cream, based in Monterey Park. “No other retailer does an event like Open Call, and it has been an awesome experience for our small business. We just had our business review and we were told our mochi ice cream is selling very well. We look forward to continuing to work with Walmart and plan to present new products at this year’s virtual Open Call.”
Sweety’s products recently hit Walmart stores and the company is applying to pitch new products that this year’s virtual open Call.
In January 2013, Walmart announced its commitment to help boost job creation and U.S. manufacturing through buying an additional $250 billion in products supporting American jobs by 2023. Walmart’s Open Call is one way in which the company continues to invest in this commitment.
Apply for Open Call today and join the conversation on your social channels by using #WalmartOpenCall
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