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Economic Update
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Quarterly Economic
Report — December 2001
By Bryan Bezold, RCGA Director of Research and Chief Economist
MANUFACTURING
IN THE NEW ECONOMY
Much has been written about the poor performance of the manufacturing
sector over the last year. Manufacturers, especially in the technology
sector, have been hit hard by a decline in business investment that
began in the third quarter of 2000. Most of the job losses in the
last 12 months, both nationwide and here in St. Louis, have been
in the manufacturing sector. Statistics that economists use to judge
the health of the industrial sector have indicated that the sector
is in recession, and it is widely thought that the decline in manufacturing
is dragging the general economy into recession. On top of that,
long-term trends have shown a shift in the national and local employment
base away from manufacturing and toward services.
Does all this mean that manufacturing is not an important part of
our local and national economies? Absolutely not. Both the short-
and long-term trends signal changes in the manufacturing sector,
but not the end of manufacturing’s role in the U.S. and St. Louis
economies.
In the long view, manufacturing’s share of total employment has
decreased. In 1981, the manufacturing share of total U.S. employment
was about 22%, almost the same as in the St. Louis region. By 2000,
those shares had fallen to approximately 14 percent.
While some of this decline is due to manufacturing moving off shore,
much of the employment decline has been caused by increases in worker
productivity. The integration of information and other technologies
into manufacturing processes has improved output per worker, so
that fewer workers are needed to produce a given amount of a product.
According to the 1997 Economic Census of the U.S., workers in St.
Louis produced approximately $300,000 worth of shipments per worker,
compared to the national average of $227,000. The mix of local manufacturers
here accounts for some of that difference, with four large auto
plants, and Boeing being the largest local manufacturing employer.
These facilities produce high value added goods. But to produce
these types of goods, one must have a skilled and adaptable workforce,
which is what we have here in St. Louis.
The manufacturing sector’s difficulty over the last year is a cyclical,
rather than structural phenomenon. In late 2000, business spending
on capital equipment abruptly declined, and manufacturers of these
capital goods bore the brunt. Nationally, manufacturing employment
has declined by 5.2 percent from September 2000 to September 2001.
Over that same time, manufacturing activity has likely been in a
recession, based on the results of the National Association of Purchasing
Manager’s (NAPM) survey of manufacturers. According to the NAPM,
the national manufacturing sector has been contracting, a state
represented by a survey score of less than 50, for the past 12 months.
The corresponding survey for St. Louis, however, paints a brighter
picture. Conducted for the NAPM by Creighton University’s Economic
Conditions Survey Team, it reveals that St. Louis area manufacturers
are more bullish on their prospects. The index for the St. Louis
region has dropped below 50 just four times in the last year, and
the most recent data point (as St. Louis Commerce went to
press) was a score slightly above 50 for September. And our manufacturing
employment increased slightly, by two tenths of one percent, from
September 2000 to September 2001. The mix of manufacturers here
accounts in part for the difference between national and local performance.
But is also indicative of the strong base of manufacturing labor
and expertise in our region.
The manufacturing sector should begin to rebound in 2002. In the
first half of 2001, businesses reduced their stock of inventories
by more than $50 billion. Once businesses have shed their excess
inventory, they’ll be in a position to purchase more goods and require
more output from manufacturers. The timing of this recovery is difficult
to foresee exactly, but it should begin next year.
The viability of local manufacturers is one of the reasons why the
RCGA has selected advanced manufacturing as one of the six industry
clusters we’re building our efforts around. With a strong base of
existing manufacturing labor and expertise, St. Louis is well positioned
to reap the continued benefits of the application of information
and other technologies to traditional manufacturing.
GROWTH IN THE BIOBELT
The RCGA’s continuing commitment to Plant and Life Sciences is paying
dividends. In November, the Donald Danforth Plant Sciences opened
its doors. It is a $75 million non-profit facility dedicated to
research in areas ranging from protein structure to virus replication
and the control of plant diseases. The Center also includes 50,700
feet of laboratory space in 15 suites.
Providing quality laboratory space is crucial to the success of
the BioBelt strategy. A recently published study by Development
Strategies suggests that ‘wetlab’ space for plant and life sciences
firms is essential to continued growth in this area. In order to
capture our region’s share of national growth in plant and life
sciences, the region will need to continue to develop wetlab space
for research. Facilities like the Danforth Center are crucial to
the region’s economic development because they represent the infrastructure
for advanced technology based economic development. |
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