Status of Manufacturing: Advanced Manufacturing Summit Presentation

The Status of Manufacturing in NH: Trends and Challenges

October 27, 2017 Advanced Manufacturing and Technology Summit Brian Gottlob, Polecon Research bgottlob@poleconresearch.com

Topics •

NH Manufacturing Performance Trends

•

……and Compared to Other States

•

Some Challenges : Industry & Policy

•

For Discussion: What will matter Most?

• Innovation • Workforce • Energy & Other Costs

Manufacturing Output in NH Has Grown More Than U.S. Manufacturing Output (and it is More Cyclical - Business Investment i.e Capital Goods vs. Consumer Goods) 115

Real (Inflation Adjusted) Dollar Value of Manufacturing Output (Index 2005=100)

110

105

100

U.S. Manufacturing NH Manufacturing

95

Linear (NH Manufacturing) 90 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

NH’s Economy Grew More Slowly Over the Past Decade than the U.S. Economy but NH’s Manufacturing Output Grew More Rapidly Real (Inflation Adjusted) Growth 2005-2016 20% 18%

16.8%

16%

NH

U.S.

15.1%

14% 11.5%

12% 10%

11.6%

10.1%

7.5%

8% 6% 4% 2% 0% GDP

Private Sector GDP

Manuf. GDP

Manufacturing is the Largest Component of Private Sector Gross State Product but it is a Smaller Share than 20 Years Ago – The Evolution of the NH Economy?

Industry Share of Private GSP Manufacturing

12.9% 9.0%

Health Care 5.4%

Finance & Ins. Retail Trade

4.9% 2.6%

Information Construction

Arts./Ent./Rec. 0.0%

6.1%

4.9% 7.0%

3.5%

1997

2016

4.1% 3.4%

Accom./Food Srvcs.

Utilities

9.6%

6.9% 7.4%

Business Srvcs.

Trans/Warehousing

8.2% 8.1%

Wholesale Trade

Educ. Srvcs

10.2%

9.6% 6.4%

Prof./Tech./Sci.

14.7%

2.3% 2.1% 2.0% 1.5% 1.5%

3.5%

1.1% 1.3%

2.0%

4.0%

6.0%

8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0%

Manufacturing Emp. Has Slowly Increased Since the End of the Great Recession While Manufacturing Output Has Increased by a Larger Percentage $8,500

95,000 90,000 85,000

$7,500 Axis Title

GSP $ Million

$8,000

Manufacturing GDP Manufacturing Emp. Linear (Manufacturing GDP)

80,000 $7,000 75,000 $6,500

70,000

$6,000

65,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Real (Inflation Adjusted) Output per Manufacturing Worker Has Been Increasing Faster in NH Than the U.S. Since 2004 – Higher Productivity and a Shift to to Higher Value Added Industries % Change in Real Output per Manufacturing Employee 50%

NH

45%

U.S.

45.1%

43.2%

40% 35%

33.1%

30% 25%

24.1%

20% 15% 10% 5% 0% All Manufacturing

Durable Goods

NH Manufacturing Emp. Growth is Subject to Greater Cyclical Swings but Has Out-Performed the U.S. (on Emp. Growth) the Past Two Years 2.5%

Yr.-Over-Yr. Manufacturing Emp. Growth

2.0% 1.5% 1.0% 0.5% 0.0% 2011 -0.5% -1.0% -1.5%

2012

2013

2014

2015

2016

NH Manufacturing Emp. U.S. Manufacturing Emp.

2017

2

0

-1

-2

-3

-4

-5

-6

-7 Oklahoma Louisiana Wyoming Delaware Texas N.M. N.D. Alaska Vermont Rhode Island W.V. Connecticut Pennsylvania Massachusetts New York Illinois Iowa S.D. Virginia Kansas Wisconsin Washington Nebraska Maryland Ohio Arkansas Maine Minnesota Hawaii N.C. Indiana Missouri California Arizona S.C. Mississippi Alabama Colorado Oregon New Hampshire Utah Montana New Jersey Michigan Kentucky Georgia Tennessee Nevada Idaho Florida

Manufacturing Employment Growth in 2016 Was Higher in NH than the National Average Pct. Growth in Manufacturing Employment 2015-2016

5

4

3

NH

1

0

-1

-2

-3

-4 Delaware N.M. Virginia New York Connecticut Nevada Idaho Vermont N.D. Oklahoma Colorado Missouri Wisconsin Maine Michigan N.C. Illinois Massachusetts Texas Arizona Indiana Iowa Pennsylvania Kentucky Ohio Rhode Island Maryland Florida Minnesota Washington Utah W.V. Georgia S.D. Alaska Montana Alabama Tennessee Nebraska Kansas Arkansas New Jersey S.C. Mississippi Wyoming Louisiana New Hampshire Oregon California Hawaii

And Annual Pay for Manufacturing Workers Grew Faster in NH in 2016 Along With Increased Competition for Workers and Labor Shortages

5

% Chg. In Avg. Annual Manufacturing Wage 2015-2016

4

3 NH

2

1

NH Exports Have Accelerated over the Past Year Compared to U.S. Exports (& With Newer Products and to More Countries) but NH Exports are More Volatile.

Annualized (4 Qtr. Sum) Dollar Value of Manufactured Exports (Index 2005=100) 220 200 180 160 140

NH

U.S.

120 100 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

The Falling Value of the Dollar (and a Stronger World Economy) Have Helped Boost NH Exports Over the Past Year Chart Title

210

110

190

105

170

100

150

95

130

90

110

85

90

80

NH Exports $ (Index 2005=100)

70

Trade Weighted Value of U.S. Dollar 75

50

70 2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Canada is a Shrinking Destination for NH Exports Today Compared to a Decade Ago but Mexico is Larger. How Will NH Exporters be Affected by NAFTA Renegotiation? What Role Protectionism?

Pct. Of NH Total Exports 60%

China Mexico Canada

50%

40%

30%

20%

10%

0% 04

05

06

07

08

09

10

11

12

13

14

15

16

17

Some Challenges: Industry and Policy

6

1

0

-1

-2

-3

-4 Delaware Wyoming New York Rhode Island N.D. Arkansas Oklahoma Connecticut Missouri N.C. W.V. Louisiana Massachusetts Illinois Kentucky Ohio Indiana Arizona New Hampshire Pennsylvania Wisconsin Nebraska California Colorado N.M. Iowa Texas Mississippi New Jersey Michigan Kansas S.D. Alaska Maryland Washington Maine Oregon Utah Vermont Alabama Hawaii Tennessee Montana Minnesota Nevada Virginia Florida S.C. Georgia Idaho

Emp. Growth Has Been Above Average but NH Lags in Growth in the Number of New Manufacturing Establishments

7

% Change in Number of Manufacturing Establishments 2015-2016

5

4

3

2

NH

Entrepreneurial Activity Has Declined Across all Industries in NH (and Across the Country) But Especially in Manufacturing – Where is the Next Generation of Manufacturing Firms? % of Employment in Firms 3 Years Old and Younger 10.0% 9.0%

8.7%

8.9% 8.5%

8.3%

7.9%

8.0%

NH Manufacturing NH All Other Industries

7.6% 6.7%

7.0%

6.2%

6.0%

6.0% 5.0%

4.3%

4.4% 4.0%

4.0%

4.4%

4.1%

5.8%

5.6%

5.6%

5.5%

2.2%

2.2%

2.0%

14

15

16

4.7% 3.7%

3.7% 3.2%

3.4%

3.0% 2.0% 1.0% 0.0% 04

05

06

07

08

09

10

11

12

13

Manufacturing Has to Become More Attractive to Younger Workers - it Has Among the Oldest Workforces in NH Median Age of Employees Real Estate Trans./Warehousing Utilities Government Manufacturing Health Care Educ. Services Pro./Sci./Tech.

Information Other Services Construction Mining Social Services Wholesale Trade Ag/Forrestry Finance/Ins. Mgmnt. Of Co's Retail Trade Arts/Ent./Rec. Accom./Food Srvcs.

52 50 50 49 49 47 47 47 47 46 46 46 45 45 45 44 43 41 36 27

20

25

30

35

40

45

50

55

In Key Industries (Including Manufacturing) There are Many More Workers Close to Retirement Than Younger Workers Ratio of Workers Ages 22-34 to Workers Age 55+ by Industry in NH Accomm. & Food Srvcs Admin. Support & Waste Mgmnt.

Other Services Construction Arts/Ent/Rec Retail Trade Finance and Insurance Ag/Forestry/Fishing Prof/Sci/Tech Srvcs Information Health Care Wholesale Trade Real Estate Manufacturing Transp. & Warehousing Educational Services Public Administration Utilities

285% 155% 128% 126% 118% 116% 114% 110% 98% 94% 92% 76% 70% 68% 63% 60% 55% 40%

0%

50%

100%

150%

200%

250%

300%

Manufacturing is not Monolithic – the Demographics of NH’s Manufacturing Industries Differ in the Severity of the Problem Ratio of Workers Ages 22-34 to Workers 55+ by Manufacturing Industry Pharmaceutical & Medicine Motor Vehicle Parts Archit. & Structural Metals Rubber Metalworking Machinery Medical Equip. & Supplies Other Fabricated Metal Prod.

Foundries Computer Equipment Machine Shops Plastics Other Electrical Equipment Cement and Concrete Nonferrous Metals Navigational, Electromedical, & Control Semiconductors Glass Products Industrial Machinery

174.6% 109.9% 102.0% 89.4% 80.8% 78.6% 77.4% 76.5% 74.8% 69.9% 66.1% 61.6% 57.1% 43.2% 42.3% 38.6% 37.4% 36.4% 0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

689 of the 17,602 Online Job Postings in July and August Were for Production Occupations – Competition for Machining Occupations is Strongest Top Titles for Production Job Openings in NH Machine Operator CNC Machinist Assembler Quality Inspector Production Worker Machinist Mechanical Assembler CNC Machine Operator Quality Control Inspector CNC Operator CNC Programmer Production Supervisor

Two Measures of the Educational Attainment of Manufacturing Workers Tell Different Stories – More Workers With Higher Skills Living in NH but Ed. Attainment of Employees Working in the State Stays the Same. Are NH’s Highest Skilled Manufacturing Workers Increasingly Employed in Another State? % of Manufacturing Workers With at BA/BS Degree or Higher 45% 40% 35% 30% 25% 20% 15%

Manufacturing Jobs Located in NH

10% 5%

Manufacturing Workers Living in NH

0% 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Some 14% of Production Workers in NH are Foreign Born and in Some Occupations the Percentage is Higher – How is (Will) Immigration Reform Affecting Manufacturers in NH?

Despite Being Less Than 7% of NH’s Workforce, NH’s Foreign Born Population Accounts for Almost 17% of NH’s Stem Degree Holders Pct. Of STEM Degree Holders Among All Employed NH Residents

16.5% U,S, Born NH Residents 17.7%

NH Born NH Residents 65.9%

Foreign Born NH Residents

NH is Not Cost Competitive With a Majority of Manufacturing Locations Around the Country (We Must Look for Other Advantages While Reducing Costs) Avg. After Tax Net Profit of Manufacturing Firms Montreal, CA Nashville Youngstown Atlanta Charleston Omaha Charlotte Richmond Raleigh Cedar Rapids Spartanburg, SC Austin Baltimore Boise Bangor Kansas City Minneapolis Manchester Burlington Hartford Denver Boston

0.00%

14.80% 9.60% 9.40% 9.20% 8.90% 8.80% 8.80% 8.70% 8.70% 8.60% 8.50% 8.10% 7.90% 7.50% 7.30% 7.00% 6.60% 6.60% 6.60% 5.90% 5.80% 4.90%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

The Price of Electricity for Industrial Customers is 83% Percent Higher in NH than the National Average Cost of Electricity in NH Compared to U.S. Average 240% 220% 200% 180% 160% 140%

Industrial

120%

Commercial 100%

Residential

80% 01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

NH Manufacturers are Challenged by Several Cost Factors Measure

•

NH Fares Poorly on Most Cost Factors

•

Total Tax Payments in NH are Labor Costs a Plus Utility Costs But Operating Margins are Lower and the Effective Income Tax Rate is High Total Operating Costs

•

•

Utility Costs Can and Should be Addressed, but Can Labor Total Taxes Costs?

Effective Income Tax Rate

Manchester Rank Among 22 Cities (Higher Number = Higher Costs)

19 20 (Only Boston and Hartford Worse) 19 2 20 (Only Burlington and Bangor Worse)

NH Manufacturing is Performing Well, What is Most Important for Securing its Future in the State?

•

Innovation

•

Labor Availability, Skills, and Quality

•

Costs in NH – Electricity, etc. (which ones?)

•

Something Else?