Manufacturing industry is essential to state’s economy, report says

Raleigh, N.C. — Even as tobacco, furniture and textiles fade in importance to the North Carolina economy, the manufacturing sector remains vital to the state’s economic future, according to a new study.

The North Carolina Chamber is unveiling the study today at its second annual “Manufacturing Summit” in Greensboro.

“The benefits and economic impact of manufacturing in North Carolina are great – historically and today – and contrary to what we too often hear and see in the public dialogue, the growth potential of modern manufacturing here is significant,” Chamber Executive Officer Lew Ebert said in a statement.

Under the title “What North Carolina Makes, Makes North Carolina,” the report notes that North Carolina is the seventh largest manufacturing state in the country. It ranks 10th in population.

Manufacturing accounts for 24..2 percent of private-sector gross domestic product in North Carolina, the report says. The top six states by percentage are Indiana (33.4), Oregon (30.5), Idaho (25.6), Iowa (25.5), Wisconsin (25.5) and Kentucky (24.3).

“Manufacturing is alive and well in North Carolina,” said Graham Toft, a consultant with Growth Economics, who prepared the report. “North Carolina manufacturers are at the forefront of an exciting and promising industrial transformation that is indicative of a kind of quite industrial revolution that could be much larger than the last.”

According to Toft, between 16-19 percent of the state’s workforce is devoted to manufacturing. He also noted that each manufacturing job helps create additional employment in other sectors and therefore “accounts for nearly 30 percent of the state’s total employment.”

Manufacturing jobs and related employment account for nearly 1.4 million of the state’s 4.06 million jobs, he added.

However, business executives are concerned about the state of the North Carolina economy. Only 28 percent believe the economy is on the right track, down for 43 percent a year ago.

In a poll conducted along with the study, manufacturing executives also expressed concerns about:

• Property tax on business machinery and equipment (45 percent)

• Motor fuels tax (44 percent)

Top issues that need to be considered, according to the report::

1. North Carolina’s Manufacturing “Brand Image” as a Place to Work: The North Carolina brand as a good place for manufacturing is very much intact, as indicated by Site Selection rankings and “best places to do business” rankings by CNBC and Forbes. But manufacturers sense slippage in public image and government enthusiasm for the industry.

They are experiencing greater difficulty recruiting young talent into very promising high tech, rewarding jobs.

2. Agility, the New Modus Operandi: What all manufacturers face in common is a fast-paced, quick-changing business environment. They are being creative and many show determination to stay in North Carolina. For high performance they need predictable state and local operating conditions where decisions affecting them by governmental entities and educational providers are timely, responsive and innovative.

3. Flexibility  - North Carolina’s New Worker: Smart workers today make themselves both valuable to current employers and marketable for their future by constantly gaining new knowledge, learning new skills and sharpening attitudes and interpersonal skills. Their best path to employment security is training. North Carolina has a well-regarded postsecondary delivery system, but closer ties between manufacturing and community colleges, in particular, will enhance competitiveness.

4. Pro-Investment Policies: The primary drivers of economic growth are innovation, quality workers and investment. Winning states are those that get the formula right for spurring investment – project and R&D investment, infrastructure investment and human capital investment. A necessary foundation is sound business tax policy. In considering changes to North Carolina’s tax policy a common beginning point must be the following: tax policy is de facto industrial policy in today’s open market economy.

5. Trade and Infrastructure: While trade policy is primarily a national responsibility, states can shape the trajectory of their manufacturing economies by ensuring uncongested, competitively priced freight movement. Over the next decades, U.S. freight tonnage is expected to increase by close to three percent annually, and transportation and warehousing employment is expected to grow at 1.1 percent annually. This industry is tightly linked with manufacturing growth. As global trade increases, further infrastructure long-range planning and financing become imperative – for rail, ports, airports, pipelines, waterways and highways.

6. Capital Access for Growth: North Carolina ranks well among states for risk capital and conventional financial services. In particular, venture capital and conventional banking have a healthy presence. Manufacturer financing often falls in the “mezzanine” category – specialty debt financing that enables small/mid-size firms to be closely held by individuals, families and partnerships. While major capital-access gaps are not apparent, many North Carolina small and mid-size manufacturing firms are 30 or more years old, at which point succession planning and/or corporate restructuring might be occurring in the next one to two decades. The state is endowed with several experienced private and university support organizations to help in this regard. This issue deserves watching, however, to ensure that all North Carolinians, including women and minorities, have the opportunity to become part of the ‘ownership class’ in the state’s manufacturing industry – at the same time increasing the odds that such firms remain locally held.

7. Reliable, Competitively Priced Energy for the Long Haul: Recent research indicates that low-cost energy strongly correlates with state economic growth. Healthy manufacturing states will be those that take bold planning and financing steps now to foster conservation and efficiency and diversify supply. North Carolina manufacturing has benefited from low cost energy in the past. This capacity can adapt to new environmental requirements, but additional ‘quantum-leap’ solutions may be required to address long-term growth realities. A comprehensive strategy to sustain the industrial base deserves utmost priority.

8. Healthcare Costs Matter: In addition to competitive energy pricing, research indicates that the other business cost factor most correlating with state economic growth this decade is health care. A recent analysis by the New America Foundation found that “many manufacturers have blamed rising healthcare costs for decisions to drop health benefits for workers or shift jobs overseas.” North Carolina manufacturers complain that healthcare costs are outpacing wages and productivity. They do not want to pass these costs on to workers by lowering wages and find it increasingly difficult to raise prices in extremely competitive markets. This threatens their ‘bottom lines‘ and reasons to exist. Like the energy situation, those states that put bold, market-responsive initiatives in place to address healthcare costs stand to gain the most as good places for manufacturing for the long haul.