Wishing Upon a Star

I often wonder what the future may hold. Most of that is idle speculation and qualitative scenarios I play out in my head regarding where manufacturing is headed. Of course, I am skeptical of forecasts or projections, but they do provide a guidepost. Indeed, if I have one criticism of the raft of studies that have been recently released, it is they are long on prescriptions and recommendations, but short on what exactly we are trying to achieve other than a stronger, larger, and healthier manufacturing sector. What exactly are we shooting for when we say a stronger, larger, healthier, robust, growing or competitive sector? Thankfully, we now have an antidote to that stream of policy work and a specific target to shoot for. We can quibble about the methods and the goal, but it is a starting point.

Last Tuesday afternoon, I attended a seminar on the release of a recent study by the Manufacturing in the 21^st Century program at the Aspen Institute. The study was based on an econometric forecast model (based on the Long-term Interindustry Forecasting Tool (LIFT) maintained by INFORUM at the University of Maryland) that showed that there is ample opportunity for U.S. manufacturing to undergo a radical resurgence in 12 years that will result in significantly more good paying manufacturing jobs, add to GDP growth, and help create the first surplus in the nation’s goods and services balance of trade since 1975.

The study, unlike most work to date, set out from a different perspective.  Rather than going through the usual litany of facts about manufacturing, this study started from this simple premise:  what if manufacturing, rather than accounting for about 12 percent of the U.S. economy, would account for about 15 percent of the U.S. economy?  What would it take to get there and what would the economy look like?  The 15 percent mark was chosen since that was where manufacturing stood in 1998 prior to the last three recessions (the dot com bust, 9-11, and financial crisis in 2007-09). Inforum was commissioned to make projections based on a target of moving manufacturing’s share of GDP back to the level last seen in 1998, and results were projected to 2025. Various scenarios were tested to determine what economic trends could power a change. The “manufacturing resurgence” scenario was then contrasted with a baseline forecast where the manufacturing value-added share would remain at today’s level, approximately 11.5 percent.

The study focused on a handful of key drivers—exports and imports; capital investments; energy supplies; regulatory and tax policy; and the skills gap for manufacturing workers and technical workers – and what changes in those factors would suggest a path forward to grow manufacturing and the U.S. economy. The results are positive.  The study provides a comparison between the two scenarios (resurgent versus baseline of business as usual). The drivers are not dissimilar to many of the policies put forth in other recent studies but now we have some empirical data to chart what the impacts of such policies may have on the future. The share that manufacturing would represent in the future under the resurgent scenario would grow to 15.8 percent of GDP in 2025, a proportion not seen since 1998, compared to 11.1 percent in 2025 under the baseline forecast. Specifically, the study found that:

• Manufacturing employment would be over 16 million in 2025 under the resurgent scenario.  Specifically, manufacturing employment would grow by 307,000 per year, or an increase of 3.7 million jobs by 2025 compared with essentially flat growth, or 23,000 workers per year, in the baseline scenario.
• In the resurgent scenario, total GDP would be $1.5 trillion larger than under the baseline scenario and most of that increase comes from the manufacturing sector.
• The balance of trade in goods and services would see a dramatic transition. Under the resurgent scenario, the balance of trade would move from its current deficit of $500 billion to a surplus of about $700 billion, including nearly $200 billion in manufactured goods.  Under a baseline scenario, the country’s balance of trade would continue to run deficits.
• Capital investment in equipment and software, an important driver of innovation and productivity growth, would increase by 12.1 percent by 2025 under the resurgent scenario relative to the baseline.

While this forecast includes assumptions that may prove to be wrong (this one assumes that much of the sluggishness in the global economy is done.), it does provide a guidepost to talking about manufacturing and its resurgence with a specific goal in mind. This forecast should provide an important look into one possible future scenario and benefits that would follow from a resurgent manufacturing sector. Is it aspirational? Sure, but it is better to be aspirational  than pessimistic.  I think there is opportunity to see that this future happens, but this will require work and will to make it happen.