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Market-Based Solutions to Vital Economic Issues
Kenan Insight
Aug 15, 2023

Manufacturing: Regional Strengths and Shifts

Part of our series on Workforce Disrupted

As our American Growth Project delves into the drivers of regional economic health, we turn now to the manufacturing sector, which remains a central part of economic discussions. The United States is often thought of as a large net importer – or a nation that tends to procure many of its goods from abroad – and an economy that focuses primarily on high-skilled services. These points are true, but manufacturing remains an important component of economic livelihood for many U.S. microeconomies. As we’ll explain, manufacturing continues to be a fundamental source of agency and economic livelihood for the nation as a whole.

Both national and international dynamics over the past several decades have led to deep structural changes within the manufacturing sector, altering the type of goods we’re producing in the U.S. as well as where we’re producing them. Before we can unpack these trends, however, it helps to understand just why manufacturing is so essential for economic growth, both in the abstract as well as for the United States in particular.

Why Does Manufacturing Matter?

Historically, manufacturing has served as a vital component of economic development and human progress. More concretely, the American economy has relied extensively on manufacturing over the course of U.S. history to build domestic infrastructure and meet consumer needs, but also as a major supplier to global trade. Not only did major American manufacturers make lasting contributions to the sector’s operations (e.g., Henry Ford and his development of the Fordist production model), but manufacturing also helped build out the middle class in the United States throughout much of the 20th century. Through the 1960s, industrialization powered the development of entire cities, laid the groundwork for further innovation and raised living standards nationwide.

Despite manufacturing’s importance to the expansion of the U.S. economy, however, it is a far smaller slice of the economy than one might think. Even in its heyday in the 1950s, manufacturing was less than 30% of the total U.S. economy and a bit over 30% of employment (see graph below). Over the next half-century, its share declined considerably. Still, the level of output continued to grow and the U.S. remains the world’s third-largest manufacturing entity (behind only China and the European Union), but manufacturing no longer occupies the significant share of the economy that it once did. Moreover, the economic gains from the U.S. manufacturing sector have lessened dramatically in recent years.1 After growing at roughly a 4% annual pace in the 50 years ending in 2000, U.S. manufacturing output has slowed dramatically and has been stagnant over the last 10 years. In fact, U.S. factories are producing 5% less today than they did in 2007, the peak year of output.

U.S. Manufacturing Share in Decline

Source: Bureau of Labor Statistics and Bureau of Economic Analysis

The COVID-19 pandemic highlighted the importance of national manufacturing capacity. The shock and tumult that rippled through global supply chains caused mass shortages of critical goods, many of which, such as masks and other PPE equipment, were essential to navigate the new biological hazard. Many U.S. manufacturers underwent a rapid switch from their normal operations to producing items critical to the pandemic response such as face shields and test tube racks.2 This also exemplifies another important benefit that a robust manufacturing infrastructure provides: In the event of a large-scale crisis, manufacturing plants can help forge the tools necessary to deal with the obstacles at hand.

These lessons have not been lost on American policymakers and business leaders. In 2022, the Biden administration announced its intention to spur domestic manufacturing through a multifaceted initiative that drastically extended the funding and resources available to American manufacturers.3 A year later, the administration continued in this direction by announcing a workforce initiative that would work to foster pathways to manufacturing employment and help meet the demand for clean energy technologies and semiconductor chips.4

Today’s globalized economy, however, differs greatly from that of the 20th century, in which the United States’ hegemonic role and large advantages in resources, human capital and investments in productivity-enhancing machinery allowed it to dictate much of the world’s economic agenda. Other countries have become manufacturing powerhouses in their own right, and increasingly complex geopolitical factors make international trade a far more complex issue. While some of these events abroad may incentivize firms to bring production closer to home5 , others may impose barriers to trade and threaten U.S. manufacturers’ ability to access international markets. Finally, the influx of new technologies such as artificial intelligence will continue to reshape manufacturing processes. This will likely have mixed effects for the labor market, as jobs traditionally performed by humans become substantially transformed or even fully automated.

A Regional Breakdown of U.S. Manufacturing

Our discussion of manufacturing at a subnational level must begin with the acknowledgment that some regions are far more dependent on the sector than others. As noted in a 2022 McKinsey report, manufacturing is the primary source of jobs in more than 500 U.S. counties.6 Other areas, however, devote only a small fraction of their economies to the physical production of goods, specializing instead in sectors like hospitality, finance, technology or professional services. This holds true for larger regions as well; while the Rust Belt was the heart of industrial manufacturing for most of the 20th century, the southern United States has increasingly gained share. Beginning in the 1980s and 1990s, manufacturing centers moved to states such as Tennessee and South Carolina, where labor was cheaper and subsidies were higher.7

Building upon the Extended Metropolitan Area (EMA) framework we developed for the American Growth Project, we have a created a unique database of manufacturing activity in the 150 most populous EMAs in the country. Our dataset covers 2001 through 2021, as that is the most recent year for which we can collect all the data components.8 In total, these EMAs represent roughly 85% of all the manufacturing activity in the United States and 72% of manufacturing employment, which illustrates that manufacturing may be a more essential component of the rural economy.9 The largest microeconomies range in manufacturing dependence from South Bend, Indiana, and Beaumont, Texas, where almost 40% of the economy is engaged in manufacturing activities, to Anchorage, Alaska (not shown on the map below), which has less than 1%.10 Of the fifty largest EMAs, Grand Rapids, Michigan, is first with 25%, followed by Greensboro, North Carolina, with 21%. Meanwhile, only 3% of Las Vegas’ fortunes rely on factories.

Midwest, Southeast Still Dominate in Manufacturing

EMA Manufacturing Share (2011, 2021)

DB-Nominal GDP Share
Source: Bureau of Economic Analysis and Kenan Institute of Private Enterprise

The dark-blue areas in the map above, which indicate heavy concentrations of manufacturing, illustrate not only the regional shifts but also the stickiness of manufacturing activity – or at least how areas of concentration continued between 2011 and 2021. Despite these shifts, the upper Midwest remains a manufacturing powerhouse. And, perhaps as surprising as it may seem, Detroit’s manufacturing economy is actually 22% larger than it was 20 years ago, though it has had a tumultuous 20 years – it shrank almost 40% during the Great Recession of 2007-08 and has slower growth than other EMAs in the years since. The recovery of Detroit’s manufacturing sector can be attributed, at least in part, to a pivot; while the area is still heavily dependent on the auto sector, the Detroit economy has made gains in other areas such as clean energy.

‘Auto Alley’ and Other Notable Growth Areas

The fate of Detroit soundly debunked the old adage that what’s good for General Motors is good for America. However, the automotive industry remains essential to many communities. Many of the areas of dark blue between the upper Midwest and western Southeast are colloquially known as “Auto Alley,” a name that reflects the preponderance of parts and vehicle manufacturers in this region. And, as exemplified by the BMW plant in Spartanburg, South Carolina (part of the Greenville, South Carolina, EMA), which exports BMW SUVs to more than 100 countries around the world, including Germany!11 Thus, it is the auto industry writ large, not just GM, that has been good for these communities.

That point is even more evident if we look at which manufacturing microeconomies grew fastest in 2021. The areas of strongest growth (dark blue) match up with the areas of highest manufacturing concentration, suggesting that many of these locations are benefiting from their manufacturing focus and gaining share. These gains have likely occurred because of regions’ concerted efforts to support factories by investing in related education systems and infrastructure.12

Growth Shifting South and West

1-year and 10- year annualized manufacturing growth

DB-GDP Index Growth
Source: Bureau of Economic Analysis and Kenan Institute of Private Enterprise

Recent migration to the South and West has driven manufacturing centers in these directions. Toggling to the 10-year growth rate in the map above highlights the manufacturing gains in these areas. On a 10-year look, all of the EMAs in Florida are significant outperformers, though in most cases their manufacturing footprint is quite small. The exception is the Palm Bay EMA (also known as the Space Coast), which has 17% of its economy engaged in manufacturing. Somewhat related, in Texas, San Antonio, with the largest joint military base in the nation, stands out for near-double-digit annualized growth in manufacturing over the last 10 years. As a result, its share of manufacturing has grown over three percentage points, one of the largest gains in the country. Meanwhile, Peoria, Illinois, has had the toughest time, experiencing a drop of almost 15 percentage points in manufacturing share over the last 10 years, as Caterpillar Inc. shuttered factories and moved its headquarters to Irving, Texas. Despite this, the Dallas EMA has experienced relatively modest growth.

Manufacturing’s Place in the U.S. Economy

Manufacturing holds a special place in the American narrative, reinforcing the image of a rugged and self-reliant nation. As we’ve shown above, however, the reality is far more complex and varied than the simple story evoked by such images. Even at its peak, manufacturing was only one driver – albeit an important one – of American expansion, constituting roughly one-third of economic activity. Manufacturing is especially important in specific areas, such as Auto Alley, but other areas have prospered with quite small portions of their economies devoted to manufacturing. Our data will allow us to monitor how the reshoring efforts resulting from COVID, more protectionist policies, and recent policy pushes such as the Biden Administration Workforce Hubs will impact manufacturing in the microeconomies of the United States.13

1 The fact that the GDP share has declined more slowly than employment is illustrative of the productivity gains in manufacturing, which is one of the reasons why wages are so high in manufacturing. The slight reversal to that trend in the last decade or so indicates that productivity has stagnated along with activity.

2 Simonite, T. (2021, May 17). Covid Forced America to Make More Stuff. What Happens Now? Wired. https://www.wired.com/story/software-entrepreneur-pandemic-pivot-manufacturing-masks/

3 The White House. (2022, February 24). The Biden-⁠Harris Plan to Revitalize American Manufacturing and Secure Critical Supply Chains in 2022 [Press release]. https://www.whitehouse.gov/briefing-room/statements-releases/2022/02/24/the-biden-harris-plan-to-revitalize-american-manufacturing-and-secure-critical-supply-chains-in-2022/

4 The White House. (2023, May 16). FACT SHEET: Biden-⁠Harris Administration Announces Strategies to Train and Connect American Workers to Jobs Created by the President’s Investing in America Agenda [Press release]. https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/16/fact-sheet-biden-harris-administration-announces-strategies-to-train-and-connect-american-workers-to-jobs-created-by-the-presidents-investing-in-america-agenda/

5 Handley, L. (2023, June 1). Firms are bringing production back home because of the Ukraine war, China’s slowdown — and TikTok. CNBC. https://www.cnbc.com/2023/06/01/reshoring-more-domestic-manufacturing-due-to-supply-chain-disruption.html

6 Carr, T. Chewning, E., Doheny, M., Madgavkar, A., Padhi, A., & Tingley, A. (2022, August 29). Delivering the US manufacturing renaissance. McKinsey & Company. https://www.mckinsey.com/capabilities/operations/our-insights/delivering-the-us-manufacturing-renaissance

7 The South is fast becoming America’s industrial heartland. (2023, June 12). The Economist. https://www.economist.com/united-states/2023/06/12/the-south-is-fast-becoming-americas-industrial-heartland

8 Industry data for cities is quite limited. For example, the publicly available data for the Denver MSA only has data for manufacturing for 2008 and 2013-2016, while our EMA which is larger, now has a full data set starting in 2001. We are currently expanding the database to include subcomponents of manufacturing and potential nowcasting and forecasting capabilities.

9 In the future we plan to explore the more rural areas of the U.S. economy.

10 The South Bend EMA contains Elkhart, IN which is known as the Recreational Vehicle capital of the world. 55% of the Elkhart region’s GDP is in manufacturing.

11 Eight Years in a Row: BMW Manufacturing is Largest Automotive Exporter in the United States [Press Release]. (2022, February 15). BMW Group. https://www.press.bmwgroup.com/canada/article/detail/T0368775EN/eight-years-in-a-row:-bmw-manufacturing-is-largest-automotive-exporter-in-the-united-states

12 https://kenaninstitute.unc.edu/kenan-insight/growth-for-all-strategies-for-ensuring-inclusive-economic-development/

13 The White House. (2023, May 16). FACT SHEET: Biden-⁠Harris Administration Announces Strategies to Train and Connect American Workers to Jobs Created by the President’s Investing in America Agenda [Press release]. https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/16/fact-sheet-biden-harris-administration-announces-strategies-to-train-and-connect-american-workers-to-jobs-created-by-the-presidents-investing-in-america-agenda/

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