Greater Opportunity Through Innovative Change
ARKANSAS MANUFACTURING: STRUCTURAL OR CYCLICAL DECLINE?
Manufacturing is the third-largest U.S. private industry sector, employing 16.9 million Americans (January 2002, Bureau of Labor Statistics). Manufacturing is the second-largest private sector in Arkansas, employing 229,800 (March 2002, Department of Employment Security).
Does the highly-publicized contraction in Arkansas manufacturing employment suggest a long-term structural decline? Or the short-term job losses followed by gains that characterize the postwar U.S. business cycle? Depending on the source, Arkansas manufacturing employment peaked seven years and three months ago in February 1995 http://www.bls.gov/eag/eag.ar.htm (U.S. Bureau of Labor Statistics), or six years and ll months ago in June 1995 (Arkansas Department of Employment Security). Either source marks the longest post-war Arkansas manufacturing decline on record. Measured in percentage terms, the AESD data, which we prefer, registers a 12 percent decline. This is the fourth largest postwar peak-to-trough manufacturing decline in Arkansas, surpassed only by the 1974-75 (19.7%), 1948-50 (19.2%) and 1981-83 (12.2%) cycles.
The National Postwar Cycle
Manufacturing employment, in a typical postwar business cycle, features a net employment gain in expansion and a peak prior to recession followed by a decline that ends in a trough before job growth starts again. The average postwar peak-to-trough is one year, nine months.
The Cycle In Arkansas
For half a century Arkansas manufacturing employment resembled the national cycle. Prior to this cycle, the average Arkansas postwar peak-to-trough was only one year, three months. A trough has not occurred this cycle. The peak occurred seven years and three months ago in February 1995 (BLS) or six years and 11 months ago in June 1995 (ADES).
U.S. manufacturing employment peaked in April 1998. States with the strongest manufacturing sectors continued to create new jobs after the national peak. These include California, which ranks first nationally in manufacturing employment and has a sector nine times the size of Arkansas (peak in January 2001 at 1.97 million); Georgia (October 1999 at 600,600); and Florida (June 1998 at 495,500). Manufacturing sectors in 23 states continued to create new jobs after April 1998.
States with the weakest manufacturing sectors stopped creating new jobs before the national peak. Following are 16 states whose manufacturing sectors have fallen for more than seven years:
Alabama, Alaska, Arkansas, Connecticut, Delaware, Hawaii, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Mississippi, Tennessee, Virginia and West Virginia.
Where Have The Arkansas Job Losses Occurred?
Private industry in Arkansas employed 260,900 manufacturing employees in June 1995 (ADES). By March 2002 it was 229,800, a net loss of 31,100 manufacturing jobs (12 percent).
The manufacturing sector is more complex than its popular smokestack image. The sector features two major components (Durables and Nondurables) that between them include more than 25 subcomponents, including a significant hi-tech area. The following chart illustrates where the largest Arkansas manufacturing job losses have occurred between June 1995 and March 2002:
Electronic Equipment -4,600 (-20.2%)
Furniture & Fixtures -2,500 (-23.1%)
Lumber & Wood Products -2,800 (-12.2%)
Instruments & Misc. Mach. -1,400 (-15.4%)
Primary Metal Industries -1,100 (-10.6%)
Industrial Machinery -3,400 (-16.6%)
Textiles (including Apparel,
Leather & Other Textiles) -11,300 (-58.0%)
Paper, Printing, Publishing
& Allied Products -2,500 (-09.4%)
Chemicals, Petroleum &
Allied Products -1,100 (-14.3%)
Pre-Recession Job Losses
Among durables, most of the jobs losses in electronic equipment, the hi-tech manufacturing subcomponent, occurred pre-recession. In June 1995, there were 22,700 jobs in electronic equipment, and by March 2001 there were only 19,100, a net loss of 3,600 hi-tech jobs (16 percent).
Lumber & wood (-2,000) and primary metals (-500) also saw most of their losses pre-recession.
Among nondurables, most of the job losses in textile, apparel & leather products, were pre-recession. In June 1995, there were 19,500 jobs in the three old subcomponents, and by March 2001 there were 10,400 in the new subcomponent, a net loss of 9,100 jobs.
Chemicals & petroleum also recorded its largest job losses (-900) pre-recession.
Factors Contributing To Decline
Factors contributing to this decline includes Arkansas' high tax rates on capital investment (versus other states); productivity increases driven by technological advances; and federal and state regulatory and international trade policies.
(1) Nonfarm payroll employment, seasonally adjusted. The Historical "B" Tables provide time series data for the U.S. manufacturing sector to 1939.
2) Some Arkansas nondurable subcomponents were combined in the late 1990s. In February 1995 the following subcomponents were used: Textile, Apparel & Leather Products; Textile Mill Products; Apparel & Other Textile Products. These three were combined into Textile, Apparel & Leather Products. The Paper & Allied Products and Printing & Publishing subcomponents were combined into Paper & Printing & Publishing. The Chemicals & Allied Products and Petroleum & Coal subcomponents were combined into Chemicals & Petroleum Products.