By: John Birch, CEO of The Birch Group
During the past 20 years, manufacturers have been a sizeable portion of The Birch Group’s core business. It has truly been a pleasure to work with companies that produce a broad spectrum of products. I have come to respect and admire how they manage the significant changes that have occurred in the industry in regards to infrastructure, creativity, operations and leadership. The constant change and demands from their clients and competitors is exhausting to watch. However, the organizations that we work with seem to be able to “Get It Done” doing more with less as the marketplace demands. To become more knowledgeable about expected changes in the technology economics, productivity and other challenge facing our clients, The Birch Group participates in various trade organizations, most recently with the U.S Council on Competitiveness, which was formed in 1986. The following is a synopsis of manufacturing related information that I have gleaned from their symposiums and other sources:
The good news is the United States continues to be the most productive large economy in the world, where GDP per work hour rose almost 60%. GDP per work hour rose from $40.30 to $62.90 between 1986 and 2015 (1). However GDP growth has somewhat stagnated behind historical norms. During the 1990s the rate averaged 2.0% and in the 2000s the rate averaged 2.5%. In 2011 the rate decreased to an average of 0.6%, continuing to decrease to a point where the productivity growth was negative (2).
However, things are improving in the manufacturing sector. Employment in the U.S. Manufacturing sector peaked in 1978. By 1986 it had fallen by 9.6%. There are several factors for the decrease. Significant improvements to automation, outsourcing of products and components, and a lack of competitiveness in some sectors as well as taxes, regulations, fluctuation in currency values drove U.S. Manufacturing employment to its lowest point during the Great Recession of 2009. Since the recovery, manufacturing employment rose 7.4% by the end of 2015, employing a total of 12.3 million people. Manufacturing is here to stay (3).
On a positive note, U.S. Manufacturing production has risen steadily over the past 30 years, with dips during the 2001 and 2009 recessions. Manufacturing Gross Output has risen 169% since 1986, from $2.21 trillion to $5.9 trillion in 2015. Also impressive is that Value Added grew by 160% over the same period, peaking at $2.11 trillion in 2015 (4).
However, as a share of GDP, manufacturing has declined over the past 30 years, reflecting the change to the economic landscape as the growth of the service and digital industries continue to grow. It should be mentioned that this phenomenon is true in all major manufacturing nations including China, Germany, France, The United Kingdom, and Japan (5).
Although manufacturing relative to total GDP is decreasing, it will not become less important to the U.S. economy. Manufacturing has the highest multiplier effect of any sector in the economy. For every dollar of U.S. Manufacturing value-added, another $3.60 of value-added is created elsewhere in the economy. Therefore, for every manufacturing job created, 3.4 full time jobs are created in non-manufacturing industries (6). Another factor important to the U.S. economy is that manufacturing firms fund a disproportionate share of business research and development, critical for U.S. companies to remain competitive in innovation and new product development (7).
Today, the U.S. culture and economy is undergoing a major transition. Significant revolution and innovations in science and technology are ushering in a new area of unprecedented knowledge. Never imagined technological power and innovations, previously inconceivable, are and will continue to have unparalleled implications for the U.S. economy and its competitiveness in the world market. The new digital revolution will allow manufacturers to drive optimization and efficiency, thus profits. Firms will gain insight into the operation of energy machine, the movement of supplies, the overall performance of products and the consumption of energy. Big data will transform the way manufacturers approach markets, manage their organization, design products, deploy people and other resources, conduct R&D, and more. With this revolution, many manufacturers are already making investments towards leveraging advances in robotics and artificial intelligence. These smart manufacturing investments will equate to generating cost savings and productivity gains potentially adding $10-$15 trillion to global GDP over the next 15 years, almost the size of the current U.S. economy (8). Other factors in driving the new smart manufacturing landscape are Nanotechnology which has already reached a $1 trillion market. It will continue to grow with a huge impact in shaping major industrial sectors, in not only the United States, but in the other industrial and emerging nations as well.
These changes and advancements will also significantly change the U.S. workforce. Manufacturers will need to continuously make finding, retaining, and developing employees’ skills their highest priority. Unfortunately today, hundreds of thousands of jobs in the U.S remains open due to the lack of skilled applicants. This skill gap is projected to leave up to 2 million jobs unfulfilled over the next decade. Employees skilled in the new technologies will be in heavy demand.
As the new manufacturing technologies will require higher skills and education, new approaches to leadership and organizational culture will be a critical factor in attracting developing and retaining employees. The management style of “Command and Control” is no longer acceptable in today’s workforce. The Generation Xers and Millennials will no longer tolerate old management styles. Also, the ability for employees to function in highly effective teams will be critical to the company’s bottom line profitability. Therefore, those skills that were once considered “soft skills” are now as important as technical skills as they play a significant role in both the culture and the organizations reputation.
The Birch Group is excited about the emerging innovations and new opportunities and promise for Connecticut Manufacturers to grow and profit. The Birch Group is here to help.
1. Organization for Economic Development and Cooperation, GDP per hour worked in constant 2010 U.S. dollars. Data extracted 2016.
2. Bureau of Labor Statistics, Non-Farm Labor Productivity Growth, United States Department of Labor.
3. National Employment Statistics Survey, Bureau of Labor Statistics, United States Department of Labor.
4. Gross National Product by Industry Data, Bureau of Economic Analysis, United States Department of Commerce.
5. Manufacturing Value Added as a Percentage of GDP, National Accounts Data, The World Bank.
6. Meckstroth, Dan. A New Model for Manufacturing’s Multiplier Effect, Manufacturers Alliance for Productivity and Innovation, April 27, 2016.
7. Advanced Technologies Initiative, Manufacturing and Innovation, Deloitte and U.S. Council on Competitiveness, 2015.
8. Wince-Smith, Deborah. Testimony before the Senate Committee on Energy and Natural Resources Hearing on Innovation Technologies on Advanced Manufacturing, April 16, 2016.