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Indiana could see record year for production: study

July 28th, 2017

By Doug LeDuc | Greater Fort Wayne Business Weekly

U.S. manufacturing production grew 11 percent and Indiana won much more than its share of that growth since the North American Industry Classification System was adopted in 1997.

The system was adopted so U.S. economic data would compare more easily with economic data from Canada and Mexico. A June report from Ball State University’s Center for Business and Economic Research examined production trends over the period, which included the 2007-2009 Great Recession and the much shorter 2001 recession.

“Manufacturing & Logistics: A Generation of Volatility & Growth” was authored by Michael Hicks, the George and Frances Ball Distinguished Professor of Economics and Business Research at Ball State, and by Srikant Devaraj. Hicks directs the center and Devaraj is its research assistant professor.

Data contradicts folklore depicting the period as “a terrible generation for manufacturing and those who move goods,” Hicks said in a statement summarizing the findings.

Setting records

Industry set a manufacturing production record in 2015. And, while it missed that mark due to weakness during the first half of last year, 2017 looks like it will be another record year for production, he said.

“Most of the confusion about manufacturing and logistics is due to declining employment over the past generation,” Hicks said. “The fact is, manufacturing firms have become very lean, and productivity growth means more goods produced with fewer workers.”

Historic employment data from the Federal Reserve Bank of St. Louis shows Indiana had 657,900 manufacturing jobs in January 1998 and the sector’s employment rose to a peak of 670,000 in December 1999, then fell to a low of 424,400 in June 2009.

The latest figure it quoted from the U.S. Bureau of Labor Statistics showed Indiana with 526,500 manufacturing jobs in June, down 21.4 percent from its 1999 peak.

Automation

Automation helped increase plant productivity, and so did a better trained and more highly educated workforce, which contributed to the successful adoption of Lean Six Sigma and other programs for the continual improvement of quality and processes.

The Midwest went into the period covered by the study as an attractive location for manufacturing, and the continued adoption of best practices for that sector as well as continued investment in the required technology paid off for Indiana.

During that period, Indiana’s manufacturing production increased 41 percent.

The U.S. Bureau of Economic Analysis has Indiana in what it calls the Great Lakes region, which also includes Ohio, Michigan, Illinois and Wisconsin. Indiana is the region’s stand-out state.

Wisconsin was its only other state to see production growth, and the increase was 4 percent, about a tenth of Indiana’s. The other states saw manufacturing production losses.

Indiana’s manufacturing production growth has been especially pronounced since the Great Recession, while production in the other states has not recovered beyond pre-2000 levels.

“Indiana isn’t especially different in terms of labor force than other Midwestern states; where we shine is our fiscal environment,” Hicks said in an interview.

“We have a very strong tax base and I think our transportation infrastructure is more robust here than what you would see in surrounding states. It really comes back to a really healthy fiscal state,” he said.

“The other Midwestern states have really had a difficult time pulling that off since the recession. There’s no doubt that that’s a problem; there is a huge fiscal crisis facing Illinois.”

Nearly half of GDP

Manufacturing production has expanded enough in Indiana that it has, with the logistics sector, accounted for 45 percent of the state’s gross domestic product growth since 1997 and for 52.5 percent since the Great Recession.

A nonprofit business advocacy organization, which has provided important support to both economic sectors for the past 10 years, is Conexus Indiana.

“Conexus is an asset developer or think tank that really figures out what we need to do to improve those assets. We do that with an industry driven approach from the bottom up,” said David Holt, Conexus vice president.

“They tell us what their needs are and we put plans in place that drive different initiatives to build that growth in the private sector and in the public sector.”

For example, through a massive study it conducted involving input from Conexus membership, Conexus was able to identify high-impact regional road projects and prioritize them to help the General Assembly project future road funding needs.

The information was used this year to craft House Bill 1002, which many legislators considered a comprehensive, responsible, sustainable plan to fund Indiana’s roads and bridges over the next 20 years when it passed in April.

In another public policy example, after Conexus showed the General Assembly a few years ago that a corporate tax code “throwback rule” was generating less revenue than it cost the state through the job losses it caused, the rule was eliminated.

The state benefited as well as businesses because the rule was associated with between 2,500 and 5,000 job losses each year, Holt said, and Indiana was missing the tax revenue spending by those employees would have generated.

On the private sector side, Conexus developed a business case that Indiana Rail Road Co. was able to take to Canadian National Railway Co. demonstrating it would make sense for them to partner in providing a Chicago bypass for intermodal rail access. The resulting intermodal terminal in Indianapolis opened in 2013.

A Conexus Hire Tech program is now offered in more than 100 Indiana schools to provide the state’s manufacturers with a pipeline of highly skilled workers.

The program enables high school students to graduate with the Manufacturing Skills Standards Council and American Production and Inventory Control Society credentials many manufacturers look for with the employees they hire.

Use of a supplier database Conexus launched to connect buyers around the world with Indiana suppliers has spread beyond advanced manufacturing and logistics to information technology and construction.

Local and regional economic development organizations have started using it on a regular basis to help connect businesses in the areas they serve with nearby suppliers, Holt said.

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