How healthy is Washington’s manufacturing industry?

How healthy is Washington’s manufacturing industry?
A recent concern for both state lawmakers and the business community has been the health of the manufacturing sector. While the industry has lost jobs and overall share of the state workforce, experts say that’s not offering the full picture.

Of recent interest to both state lawmakers and the business community is the health of Washington’s manufacturing industry. Since 2000, the sector has shrunk as part of the state’s overall workforce by three percent, according to a new report by the Economic Revenue Forecast Council (ERFC). Also, the total number of jobs has decreased in recent years.

This, among other concerns, inspired unsuccessful efforts this legislative session to reduce the state’s business and occupation (B&O) tax rate for manufacturers to match that of Boeing’s.

Clay Hill is the director of governmental affairs for tax and fiscal policy at the Association of Washington Business, the state’s de facto chamber of commerce. He told Lens that “this is a sector that’s losing employment, even as employment in all other sectors is doing really well in Washington, and I think we have to ask ourselves are we competitive or not competitive in growing jobs in that sector.”

Hill’s observation matches statistics from the National Association of Manufacturers’ annual report, which show that although the total number of manufacturers in the state increased between 2013-2016, there were almost 3,000 fewer jobs and the sector experienced a $300 million drop in economic output.

In 2016, the industry employed 286,300 workers and generated $58.4 billion, roughly 12.4 percent of the state’s gross domestic product. The average worker was also well paid, at $87,000 annually.

However, some industry experts caution against painting with too broad a brush when discussing manufacturing. The North American Industry Classification System (NAICS) lists many separate manufacturing subsectors that can be impacted differently by automation and economic globalization.

“Manufacturing is always doing better than people think it is,” Manufacturing Industrial Council Executive Director Dave Gering said. “It’s a way bigger part of the state economy than most people know. Aircraft manufacturing is huge. This a world-hub for that kind of thing. And we can get kind of inured to that.”

He also points to the state’s maritime sector, which includes ship repair and maintenance. The state has 26 shipyards and an estimated 60,000 Navy workers located in Puget Sound. The metal trades sector of manufacturing has also done well. In 15 years, its yearly revenue grew by 160 percent –from $4.7 billion to $12.3 billion — and increased its employment from 19,000 employees in 2002 to 34,000 in 2016. The metal trades are also mostly small businesses, with an average of 12 employees each.

Last year, Gering testified at a Senate Ways and Means Committee work session, arguing that  negative societal attitudes about manufacturing jobs need to change to encourage more students to enter related fields. The state Workforce Training and Education Coordinating Board anticipates that hundreds of jobs for manufacturing and production will go unfilled between 2016-21.

“Number one thing a kid can learn for their job security is welding,” Gering said. “That is the absolutely truth. Bottom line: if you’re a human being who likes to do that kind of work you should keep doing it.”

Yet he says that job growth, or the lack thereof, isn’t always an accurate reflection of industry health. Last year, Boeing announced it was ramping up production for its 737 from 42 to 47 planes a month in response to strong demand, despite a 4.7 percent employment decline that same year.

Part of the state’s industry job loss could be due simply to automation or increased manufacturing operations overseas, he said.

At the same time, robots aren’t the only cause for the job decline. The latest figures from the Bureau of Labor Statistics (BLS) show manufacturing employment is up in states such as Texas. In 2017 alone, Texas added 36,000 new jobs.

“There is a story related to manufacturing, and it’s not just a story that manufacturing jobs are being automated and they are just destined to lose grounds,” Hill said. “There are states that are finding the solution to that predicament rather than just saying that’s reason for never trying to improve our numbers in that sector.”

Hill also points to a December 2017 BLS report that showed the Pacific region (Washington, Oregon and California) had higher employee compensation costs compared to the South or Mideast. Perhaps underscoring that reality was the recent announcement by aerospace manufacturer Flow International that it was moving its manufacturing operations from Kent to Kansas, costing 110 local jobs.

In a statement, CEO David Savage said “the cost of doing business in the Seattle area has changed dramatically over the last few years, and the cost of manufacturing in the region continues to climb. As we look into the future, we expect these operating challenges to continue to increase, and we are taking the step now to combine operations in order to remain competitive in our marketplace.”

Last year, an Atlanta-based company announced that it would be closing its Southwest Washington pulp mill that has been in operation since before Washington’s statehood. However, statements made by a company spokesperson suggested the connection between the state’s business climate and the decision wasn’t clear-cut.

Nevertheless, Gering and Hill say a reduced B&O tax rate would be a huge benefit to the industry that has significant overhead costs.

“It’s certainly worth fighting over,” Gering said. “They (manufacturers) have to spend a lot of money to make money. Their revenue doesn’t reflect their profitability. If you’re a lawyer, you don’t have those costs.”

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