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The Benefits of The Manufacturing Multiplier Effect

Apr 16, 2024

We at Intrex Aerospace are proud to be part of the manufacturing universe. We know that as different segments of our economy are measured in terms of sales or revenue dollars, not all segments have the same impact. There is an economic principle called the Manufacturing Multiplier Effect . Because of the many links across the overall economy manufacturing leads all major segments in terms of impact. Manufacturing stimulates more economic activity than any other sector.  It touches many different economic sectors, and produces a long list of positive benefits, more income for workers, more income for companies, more supply and greater aggregate demand, for the economy as a whole.

It has been acknowledged that its’ greater overall effect goes well beyond just job creation. President Obama in his 2013 State of the Union address, publicly acknowledged the economic significance of the manufacturing sector. More recent studies suggest the impact of the manufacturing multiplier effect may be much higher than previously calculated. No sector does more to generate broad-scale economic growth and, ultimately, higher living standards than manufacturing.

Manufacturing Provides Skilled High Paying Jobs

The manufacturing job sector does still employ just under 10% of the total workforce, while providing jobs with an average compensation level greater than the average for the rest of the business community, which is obviously a positive.

A healthy economy needs job creation. One of the challenges we now face is sustaining job growth, as a percentage of total employment in the 21st century, due to higher levels of automation and its’ incumbent productivity gains.

In the new economy job growth will be achieved primarily not through adding inexperienced raw labor, but through developing a highly trained technically skilled, work force. The trained labor force, coupled with capital investment plays a crucial role in growing the manufacturing sector, and growing the overall economy.  Coming out of Covid manufacturing jobs have shown  many positive signs.

Manufacturing Leads Economic Growth

One of the major reasons manufacturing and its multiplier effect play such a critical role in growth is, as factory output grows, it requires more inputs from mining and utilities and suppliers which creates job and investment opportunities in all the other sectors that use its products, such as transportation, construction, and retail. It also spurs growth in services such as finance and transportation.

To give you some point of comparative reference, the Bureau of Economic Analysis (BEA) had projections based on Bureau of Economic Analysis (BEA) annual input-output tables have calculated that a dollar’s worth of final demand for manufacturers generates $1.48 in other services and production. This is considerably higher than any other sector. The retail and wholesale trade sectors have much lower multipliers, generating 54 cents and 58 cents respectively.

But the $1.48 figure originally given underestimates the impact manufacturers have. A new analysis by Inforum, an economic consulting service working out of the University of Maryland, suggests the manufacturing multiplier is much higher — $1.92, almost doubling the base value of the manufacturing output itself.

Yet another source the Manufacturing Association sites their research shows for every $1.00 spent in manufacturing adds another $2.74 to the economy. This figure does not include the addition of employees hired elsewhere

If you would like additional information on manufacturing and its merits, I would suggest visiting National Association of Manufacturers (NAM). On their website they have published a listing of 18 facts (with supporting subtext) that define in a succinct listing, the many positive things manufacturing provides for our economy. (see below)

The Top 18 Facts You Need to Know

  •   ·Manufacturers contributed $2.71 trillion annually to the U.S. economy, based on Q4 2021 data.
  •    For every $1.00 spent in manufacturing, there is a total impact of $2.68 to the overall economy. Most                       manufacturing firms in the United States are quite small.
  •   The manufacturing sector employed 12.77 million workers in May 2022.
  • ·  Manufacturing workers in the U.S. earned $92,832 on average, including pay and benefits.
  • ·  95% of manufacturing employees were eligible for health insurance benefits in 2020.
  • ·   Manufacturing reported 996,000 job openings in April, a record level.
  • ·   By 2030, 4 million manufacturing jobs will likely be needed.
  • ·   U.S.-manufactured goods exports totaled nearly $1.2 trillion in 2020.
  • ·   Manufactured goods exports have grown substantially.
  • ·   World trade in manufactured goods has expanded strongly over the past couple decades.
  • ·   World trade in manufactured goods has more than doubled.
  • ·   Manufacturing in the U.S. would be the eighth-largest economy in the world.
  • ·   Foreign direct investment in U.S. manufacturing reached nearly $1.9 trillion in 2020.
  • ·   Affiliates of foreign multinational enterprises employed nearly 2.5 million.
  • ·   Manufacturers perform nearly 58% of all private-sector R&D.
  • ·   Manufacturers consume more than 30% of the nation’s energy.
  • ·   The cost of federal regulations falls on manufacturers.

The  ripple effect of manufacturing with its’ myriad  of linkages to the different economic sectors is positive and real. Intrex Aerospace is honored to participate in the manufacturing world. I hope the information shared above, gives you an awareness of its’ importance in maintaining a robust, economy.

If you would like more information about Intrex, we would welcome an opportunity to further connect with you. Please click here.

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