November 5, 2004
Indiana Manufacturing in Perspective
The four year-long hemorrhaging of manufacturing jobs in Indiana and the United States is finally over. In the years 2000-03, the national economy shed almost 20 percent of its manufacturing workforce, and states like Indiana that depend most heavily on manufacturing for their livelihood suffered more than most. But October’s job report showed practically no change in the number of jobs in the nation’s factories, and for the last twelve months employment levels have been relatively constant.
The 2001 downturn was much more severe than what was experienced in the previous recession in 1991. That recession was felt more strongly in non-manufacturing industries, particularly in financial institutions and the defense industries, leaving Midwest states like ours in relatively good shape.
Yet in every recessionary dip there is an unfortunate tendency to confuse what economists refer to as cycle and trend. We see manufacturing employment cycle down – in some cases, dramatically – with the onset of every recession. Yet we speak as if that temporary decline was in fact a longer lived trend that will extend out to the indefinite future. The evidence from recessions past says otherwise.
In fact, a look at the data pours water on many commonly accepted notions about manufacturing in general, and Indiana manufacturing, in particular. Here’s a few examples.
Is the Indiana manufacturing economy in decline? That depends on how you keep score. In inflation-corrected dollars, the output of Indiana’s manufacturers has increased every year between 1990 and 2003 except one – the year of the 2001 recession. The lost output of much publicized plant closings here and there have been silently replaced – and more – with more and higher value output from existing and new facilities.
There’s no question that those facilities employ fewer workers than before. And there’s also no denying that the non-manufacturing side of the economy is growing much faster. But the image of manufacturing wasting away to nothingness is sheer fantasy.
And while we’re talking about declines, you may have thought that Indiana manufacturing suffered quite a bit more than manufacturing nationally in this recession. Again, the facts say otherwise. Beginning with the first quarter of 2001, the official beginning of the recession, the Indiana economy suffered a 10 percent decline in manufacturing jobs through the end of 2003. Over those same quarters, the U.S. manufacturing sector was hit with a 15 percent job loss.
What is more, the declines in Indiana came off a higher base. Using data from the new NAICS-based classifications of manufacturing, which depart significantly from the older SIC system, manufacturing employment in Indiana saw impressive gains in the 1990’s, particularly in the first half of the decade. When the latest manufacturing downturn started in 2000, Indiana’s manufacturing payrolls stood nearly 15 percent higher than they were in 1991.
That good fortune was not seen everywhere in the state. Hardest hit has been the Gary/Hammond region, which has suffered a 28 percent decline in manufacturing payrolls since 1990. Muncie and Kokomo have also suffered declines in excess of the national average over the last 14 years. Yet still other regions, like Lafayette and Elkhart/South Bend, have more manufacturing workers today than they did in 1990.
These facts don’t take anything away from the serious challenges facing our state’s manufacturers, or for Indiana communities whose economic engines are sputtering. But they do help put the performance of manufacturing in recent years in better perspective.
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