Tuesday, July 23rd, 2019

Manufacturing sector shows steady recovery

Posted: Tuesday, March 1, 2011

Article by the Center for Business and Economic Research at Ball State University

Economic experts at Ball State University believe Indiana's manufacturing industry is beginning to show signs of recovery. Recent data from the school's Center for Business and Economic Research (CBER) shows average weekly hours and earnings in the state's manufacturing sector have reached their highest levels since the start of the recession in December 2007.

"That indicates the economy is in recovery, and that manufacturing is recovering, although it's a rather slow recovery," says CBER Director of Research Dagney Faulk. "Even though the average weekly hours and earnings in manufacturing have been increasing the past couple of months, it's still relatively small increases."

Reaching their highest point since the recession, average weekly hours in December 2010 were 2.6 percent higher and earnings 2.9 percent higher than December 2009.

Faulk says employment in durable goods manufacturing — products that have a useful life of two years or more — is leading the rebound, which could indicate businesses are buying more machinery and equipment to increase production.

"After a recession ends, it takes businesses awhile before they're actually confident enough to hire additional workers in response to additional demand for products," says Faulk. "I think we're in that stage right now where employers are starting to feel confident about improvements in the economy and are hiring more workers in response to higher demand."

The report shows the rebound is being led by transportation equipment manufacturing, such as the production of automobiles, auto parts, and aerospace products in the defense sector.

"Transportation equipment manufacturing is obviously important in Indiana," says CBER Director Michael Hicks. "We saw 3.48 percent growth month over month ending in December 2010 with 3,300 new jobs in that sector. That's fantastic for a single sector, and hopefully, the other sectors can catch up to it as well."

Hicks says, while any increase in employment is positive, the growth is slow and in small increments. He believes the sluggish recovery is the result of an economic "perfect storm."

"In most other recoveries that were not accompanied by a big decline in the financial sector, we saw much more robust recoveries," says Hicks. "But this is the classic worst case scenario; a deep recession with very difficult financial markets — that means a very slow recovery. Throw on top of that a big budget deficit and tax uncertainty at the national level, and it's a potent environment for slow growth."

Despite the state's slow progress, Hicks says the recovery of Indiana's manufacturing sector is at "the top of the pack" nationally.

CBER data shows other manufacturing sectors in Indiana are experiencing slower growth; Hicks says that's possibly because non-durable goods, such as food and food related products, had a much smaller decline during the recession.

"What we're seeing now is the biggest bounce back happening in the sectors that had the biggest loss, which is often common in the early parts of a recovery, because those are the sectors that were fully idled during the downturn," says Hicks. "I think we'll continue to see the circumstances getting better, but it's going to be very slow. However, my gut tells me we probably are seeing an upward trend."