Executive Briefings

Manufacturing Actually Accounts for Third of U.S. GDP, Not One Tenth, Research Suggests

Two measures commonly used by the government to measure manufacturing's overall impact on society are badly underestimating the impact of that critical sector. One is the proportion of gross domestic product for which manufacturing accounts. The other is the "multiplier effect," which measures the impact on other industries from an increase in economic activity by a specific industry.

Manufacturing Actually Accounts for Third of U.S. GDP, Not One Tenth, Research Suggests

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 percent. The U.S. Department of Commerce finds the total requirement manufacturing multiplier is around 1.4.

Both figures grossly understate manufacturing’s impact. By a long shot. Intuitively, we should know this - contemporary Americans are surrounded by and completely reliant on thousands upon thousands of manufactured goods, whether we’re working, eating, driving, flying, sleeping, playing or relaxing. Judging by the sheer volume of stuff in our lives, how could manufacturing represent only a tenth of the economy?

It doesn’t. New research by Dan Meckstroth, chief economist of the Manufacturers Alliance for Productivity and Innovation, using analysis of national input–output tables by Interindustry Forecasting (Inforum) at the University of Maryland, shows manufacturing’s total value chain actually accounts for about one-third of U.S. GDP, or three times the impact that the narrow official data suggest. Moreover, manufacturing’s multiplier is 3.6, also nearly three times as high as the simplistic estimates; we find that every $1.00 of manufacturing value-added generates $3.60 of value-added elsewhere across the U.S. economy.

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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 percent. The U.S. Department of Commerce finds the total requirement manufacturing multiplier is around 1.4.

Both figures grossly understate manufacturing’s impact. By a long shot. Intuitively, we should know this - contemporary Americans are surrounded by and completely reliant on thousands upon thousands of manufactured goods, whether we’re working, eating, driving, flying, sleeping, playing or relaxing. Judging by the sheer volume of stuff in our lives, how could manufacturing represent only a tenth of the economy?

It doesn’t. New research by Dan Meckstroth, chief economist of the Manufacturers Alliance for Productivity and Innovation, using analysis of national input–output tables by Interindustry Forecasting (Inforum) at the University of Maryland, shows manufacturing’s total value chain actually accounts for about one-third of U.S. GDP, or three times the impact that the narrow official data suggest. Moreover, manufacturing’s multiplier is 3.6, also nearly three times as high as the simplistic estimates; we find that every $1.00 of manufacturing value-added generates $3.60 of value-added elsewhere across the U.S. economy.

Read Full Article

Manufacturing Actually Accounts for Third of U.S. GDP, Not One Tenth, Research Suggests