Assessing Impact of Manufacturing Value Chain on U.S. Economy

When factoring in the broader manufactured goods value chain – including activities such as research and development, corporate management, logistics operations, and advertising and branding – manufacturing’s footprint on the American economy is much larger than what is measured in most analyses, according to a new report from the Manufacturers Alliance for Productivity and Innovation (MAPI). In their report, The Manufacturing Value Chain Is Much Bigger Than You Think! researchers from MAPI find that, although traditional analyses typically place manufacturing’s proportion of gross domestic product (GDP) at around 11 percent and its share of economy-wide full-time equivalent employment at 9 percent, the extended manufactured goods value chain accounts for approximately one-third of GDP and employment in the United States.

The report’s authors use input-output calculations from Inforum at the University of Maryland to inform their analysis, under the guiding assumption that conventional analyses underscore the impact of manufacturing on the national economy. This report is unique in that it differentiates between the upstream and downstream manufacturing activities. The upstream supply chain includes items such as raw materials, processed inputs, and services required for production. The downstream sales chain includes activities such as transport, distribution, wholesale, and retail trade.

While the traditional output multiplier for manufacturing indicates that every one dollar in final sales of manufacturing products supports an additional $1.40 in upstream supply chain output from nonmanufacturing sectors, the report’s authors note that this calculation does not count the downstream sales chain. To augment this, MAPI introduces a new multiplier that both includes downstream sales chain transactions and eliminates potential double counting, finding that one dollar of domestic manufacturing value-added destined for manufactured goods final demand generates another $3.60 of value-added elsewhere.

Overall, the authors find that the upstream supply chain makes up 46 percent of the value-added of manufactured goods for final demand, while the downstream sales chain accounts for the remaining 54 percent.  Because manufacturers produce goods that are oftentimes intermediaries in nonmanufacturing final demand value chains, a large portion of total manufacturing production, value-add, and employment is not included in the production of manufactured goods sold to final demand. MAPI finds that 25% of total manufacturing production ($1,523 billion), 26% of total manufacturing value-added ($510 billion), 27% of total manufacturing FTE employment (3,171,000), and 26% of total manufacturing compensation ($221 billion) is manufacturing activity for upstream supply in a nonmanufacturing final demand supply chain.