Why is manufacturing activity up in some regions and down in others?
Why is manufacturing activity up in some regions and down in others?
For all the talk about the decline of American manufacturing in recent decades, we still make a whole lot of stuff in this country. A quarter million manufacturing facilities provide around 13 million jobs and generate more than 10% of gross domestic product.
But according to the Federal Reserve, how well any one of those factories is doing depends in part on where it’s located. The Fed’s Beige Book this month reported different regions had “widely disparate trends in manufacturing activity ranging from brisk downturn to moderate growth.”
Activity is down in the upper Midwest, stable in Texas, and up in the Northeast — all at the same time.
One factory feeling the Northeast upswing is Queen Screw, which makes precision parts for medical devices and the defense industry in Waltham, Massachusetts. General manager Peter G. Babigian estimates customer orders are up 5-10% over last year. He suspects his customers in the medical industry are still seeking equilibrium after the pandemic.
“I think during COVID people ramped up and oversupplied,” he said. “People have now depleted some of that inventory, so we’re picked up a little bit.”
Many of Babigian’s customers are local. The Northeast has a strong biomedical industry and lots of drug makers that support manufacturers like him.
That regional dynamic could explain why manufacturing is up in the Northeast, said Jason Miller, a professor of supply chain management at Michigan State University. “The Northeast is not a manufacturing powerhouse in general, but in areas like Boston and New York there’s a lot of pharmaceutical manufacturing, which has been one sector that has been doing particularly well.”
But other kinds of manufacturing in other parts of the country have struggled of late. “Some of the most negatively affected sectors over the past few years have been furniture, with the downturn in housing activity,” said Miller.
That’s bad for furniture makers in North Carolina and Michigan — which illustrates something important about American manufacturing: Different parts of the country make different products.
“I often think that Americans forget how big the United States is,” said Betsey Stevenson, an economist at the University of Michigan. “We always see really big differences in the economic situation across the country.”
In the early days of the COVID-19 pandemic, consumer spending shifted away from services and toward goods — a positive development for consumer-oriented manufacturers, said Stevenson.
“People wanted to buy stuff. They couldn’t do things because of the pandemic,” said Stevenson. “They were stuck at home, and I think they decided that it was time for a new couch after they’d been sitting on it for so long, and that surge in goods was really unprecedented.”
But the surge was short-lived. Spending has shifted back toward services — travel and healthcare — which doesn’t affect manufacturers everywhere the same way, said Stevenson. “That’s not going to impact somebody who’s manufacturing medical devices. That is going to impact somebody who’s manufacturing couches.”
Despite the regional differences in manufacturing trends, there are some unifying economic forces facing the industry as a whole, said Carolyn Lee, president of the non-profit Manufacturing Institute. “One of the biggest challenges for them is uncertainty — uncertainty in regulation, uncertainty in laws and policy. All of that has a chilling effect,” she said.
Legislation passed under the Biden administration has led to a surge in investment in factory construction, but it’s unclear if that will continue in the next administration.
Plus, manufacturers nationwide face a labor shortage, with more than half a million unfilled jobs, said Lee. “We continue to be challenged by a structural skills gap. It is absolutely affecting manufacturers everywhere.”
Still, in a country that makes much of its food in the agricultural heartland and a lot of steel near the Great Lakes, the story of manufacturing is just going to look different depending on where you are.
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