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Myth Buster: Manufacturing A Primary Driver Of Growth In California


EDITOR'S NOTE: This post was updated on June 19, 2014 to include newly released and revised data from the U.S. Bureau of Economic Analysis.

You don’t hear many people talking about how great California’s manufacturing industry is doing. In fact, it’s regularly called out as an industry in demise in the state. How then do we account for the data – which shows that over the past decade, California’s manufacturing industry has been one of the state’s primary engines of economic growth? According to the latest numbers from the U.S. Bureau of Economic Analysis, the California economy has grown by 16.6% over the last ten years, and 2.6 percentage points of that growth can be attributed directly to California manufacturing. Looked at another way, nearly one-fifth of the state’s economic growth in the past decade has been due to this one industry.

It doesn’t seem to make sense – given the constant barrage of stories about manufacturing operations being shipped overseas and the industry being in decline nationwide. The big misconception has to do with employment vs. output. While manufacturing employment in California and throughout the United States has indeed declined over the years, manufacturing output has followed a completely different trend. Even after adjusting for inflation, the value of California’s manufactured goods increased by 26.8% from 2003 to 2013 (the most recent data available). This has far outpaced the industry’s performance in the rest of the nation. After netting out California, manufacturing output in the remainder of the United States grew by 17.1%, much less than the growth seen in California.

Steady gains in productivity have played a large role in the manufacturing industry’s output growth – and employment decline – over the last decade. In the United States, real manufacturing output per worker has increased 43% over the past ten years while employment has decreased by 17%. Manufacturing productivity in California has increased even more over the decade: real output per worker in the Golden State increased by 57% while employment decreased by 19%. So while there has been loss in employment due to technological advancements and automation, the state (and nation) has also managed to produce substantially more with the current workforce.

What is it about the state’s manufacturing industry that has led to such economic success? Simply put, California is the nation’s tech basket, and over time, the state’s manufacturing industry has transitioned towards production of higher valued tech goods, becoming a major driver of economic growth. Manufacturing of computer and electronic products in California make up nearly one-quarter of all computer and electronic production nationwide. Moreover, California’s large share of computer and electronic product manufacturing is not confined to the industry’s output. The state is also home to 21% of the nation’s exports of computer and electronic products, as well as 25% of the nation’s employees of computer and electronic product manufacturing.

Computer and electronic product manufacturing also dominates California’s overall manufacturing industry, making up nearly half of the industry’s output. This has not always been the case. In 2002 computer and electronic product production made up 17% of real manufacturing output in California, but ten years later that share has nearly doubled to 32%.

Home to Apple, Google, Hewlett-Packard, Cisco, Oracle, Facebook, and Twitter, to name a few, it comes as no surprise that hi-tech has played a large role in California’s economic growth. However, what is not widely understood is just how much it has shaped the state’s manufacturing industry. As global demand for technology products increases, California is well positioned to take advantage of that growth. In much of the developing world incomes are rising and people are consuming more of the products made here in the state.

A few other manufacturing sectors in California have also made solid contributions to the industry’s output and have outpaced growth in the rest of the nation over the long term. Chemical product as well as other transportation equipment manufacturing, have grown by 117% and 32% respectively over the last decade. In contrast, these manufacturing sectors in the rest of the nation (not including California) grew by 9.0% and 36%, respectively.

Not all sectors of California’s manufacturing industry have fared as well, however. Real output of petroleum and coal products, the sixth largest manufacturing sector in the state, declined by 30% from 2002 to 2012 (the most recent data available). Real output of fabricated metal products has similarly underperformed, contracting by 4% in the last decade.

These industries have also lagged their counterparts in the rest of the nation over the last ten year’s worth of data. Petroleum and coal product manufacturing in the nation overall declined by just 1% from 2002 to 2012, and fabricated metal product manufacturing throughout the nation contracted by just 0.1% over the same time period.

One of the reasons why some manufacturing sectors have unperformed in California over the years is because of the state’s business climate. High land and energy costs, as well as regulations such as the California Environmental Quality Act, have created challenges for the state’s economy and contributed to declines in some types of manufacturing. But despite these obstacles, California’s manufacturing industry remains one of the strongest in the nation and a driver of economic growth.

California may not be well known for its manufacturing prowess, but the next time you come across a news story decrying the industry’s role in the state’s economy, don’t believe the hype. The data doesn’t lie. Manufacturing in California has truly taken center stage over the last decade and has become one of the largest contributors to economic growth in the state.

CATEGORY: General Economy

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