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Fed Manufacturing

Fed Manufacturing

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Published by workitrichmond

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Published by: workitrichmond on Oct 13, 2011
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From an industrial perspective, any analysis o the economic impact o recessions at a na-tional or regional level begins with a review o industrial structure, and ew sectors are morevulnerable to recessions than manuacturing.Indeed, during the recession o 2007–09, thenation’s manuacturing sector accounted ornearly hal o the peak-to-trough decline intotal economic output, even though the sectorrepresented only about one-eighth o grossdomestic product when the recession began.In terms o timing, the decline in manuactur-ing led the nation into the recession by up tosix quarters. In act, the sector incurred nearly20 percent o its total employment losses be-ore the recession ocially began. Tracking employment data is oten the onlyway to monitor regional economic activity on amonthly or quarterly basis, but ocusing exclu-sively on employment ignores the recession’simpact on output. This article examines theperormance o the Fith District’s manuactur-ing sector based on both employment andoutput during the most recent recession. Todo this, the composite diusion index and oursubsector indexes, derived rom the Fith
October 2011, EB11-10
Economic Brief 
EB11-10 - The Federal Reserve Bank of Richmond
Fifth District Manufacturing and the Recession:An Analysis of Subsector Performance
By Robert H. Schnorbus and Judy R. Cox 
Over several decades, the relative rise o consumer durables manuacturingand the relative decline o consumer nondurables manuacturing in the FithDistrict may have hindered the region’s ability to weather the recession o 2007–09. Decomposing the Fith District Survey o Manuacturing Activityinto our subsectors confrms that this new mix o industries contributed toa slightly deeper recession and a slower, weaker recovery in the Fith District.
Page 1
District Survey o Manuacturing Activity, areused as proxies or output measures o manuac-turing perormance.
These indexes track monthlysurvey responses regarding shipments, orders,
Manuacturing Subsectors
Consumer Durable Goods:
Lumber and Wood ProductsFurniture and FixturesComputer and Electrical Equipment ComponentsMiscellaneous Manuacturing Products
Consumer Nondurable Goods:
Food and Kindred Products Tobacco Products Textile Mill ProductsApparel and Other Textile Products
Industrial Durable Goods:
 Primary Metal ProductsFabricated Metal ProductsIndustrial Machinery and Equipment Transportation Equipment
Industrial Nondurable Goods:
 Chemicals and Allied ProductsRubber and Miscellaneous Plastics ProductsNonmetallic MineralsPaper and Allied ProductsPrinting and Publishing
Page 2
and employment. They divide the District’s manu-acturing sector into our broad subsectors, allowingcomparisons o the recession’s impact on dierentcategories o manuacturing.
Historical Perspective
 The national manuacturing sector has been declin-ing, both in terms o employment and as a percento total output, or at least our decades. Duringmuch o that time, many industries migrated romthe Midwest to the South, increasing the importanceo manuacturing in the Fith District. The Districtattracted new manuacturers that provided—untilthe mid-1990s—some degree o underlying employ-ment growth in a sector that was declining in mostother regions o the nation. But the District’s ongoingtransition rom older industries (such as tobaccoand textiles) to newer industries (such as autoparts) may have made it more vulnerable to cycli-cal declines. Demand or auto parts, or example, ishighly sensitive to business cycles, while demandor tobacco products once was considered nearlyrecession-proo.In the mid-1990s, the Fith District began losingmanuacturing jobs more quickly than the rest o the nation. This shit has accelerated despite wide-spread publicity about high-profle manuacturers,such as Boeing and BMW, building plants in theDistrict. Between 1990 and 2007, District manuac-turing employment declined 50 percent aster thannational manuacturing employment. Then, duringthe recession, District manuacturing employmentdeclined at about the same rate as national manu-acturing employment, which ell 14 percent. Themost adversely aected state in the District wasNorth Carolina, where manuacturing employmentell 17 percent. This may have resulted rom a morepronounced shit rom older industries to newerindustries in North Carolina compared to other statesin the District.
During the recession, urther manuacturing joblosses in the District were not just concentrated inolder industries that were no longer competitive inthe global economy. Job losses also were evident innewer, more globally competitive industries. This, too,was caused partly by the arrival o long-term structur-al decline in the District—something that had begundecades earlier in other regions when manuacturersstarted migrating to lower-cost countries.In the decades leading up to the most recent reces-sion, even though newer industries were replacing
Figure 1: Manuacturing Employment Trends
United States
(left axis)
Fifth District
(right axis)
    J   o    b   s    i   n     T    h   o   u   s   a   n    d   s    J   o    b   s    i   n     T    h   o   u   s   a   n    d   s
Sources: Bureau o Economic Analysis, Bureau o Labor Statistics, Haver Analytics, and authors' calculations
older ones in the Fith District, the manuacturingmix was becoming more sensitive to cyclical down-turns. During this time, consumer durables, thesubsector that is typically most strongly aectedby recessions, grew substantially as a percentage o the District’s manuacturing base, while consumernondurables, a subsector that is typically moreresistant to recessions, declined dramatically as apercentage o the District’s manuacturing base.Consumer durables, such as the power tools madein Maryland, tend to cost more and last longer thanconsumer nondurables, such as the cookies baked inVirginia. During a recession, the typical consumer ismore likely to satisy his sweet tooth than expand hishome workshop.
Subsector Analysis
I productivity were rising, which might be expectedin the transition rom older to newer industries, thenoutput could increase despite employment declines.Yet gross state product data show that the District’smanuacturing output grew more slowly than thenation’s during the past decade. However, gross stateproduct data oer limited observations o cyclicalbehavior because they are calculated only annuallyand thus obscure the monthly changes by whichrecessions are more oten measured. To clariy the
Page 3
underlying cyclical patterns, the Federal ReserveBank o Richmond uses a monthly composite di-usion index derived rom the Bank’s Fith DistrictSurvey o Manuacturing Activity. The index is basedon weighted averages o survey responses aboutincreases and decreases in employment, shipments,and new orders, making it a viable proxy or monthlyoutput. This index, decomposed into our majorsubsectors, reveals richer insights than gross stateproduct data into the impact—both timing and rela-tive magnitude—o the recession on the District’smanuacturing sector.Comparisons o the composite index to similarnational and regional measures indicate that mosto the District’s manuacturers elt the recession’seects much sooner than their national counter-parts. Indeed, the District’s manuacturing sectorwas beginning a steep descent while the nationalmanuacturing sector still was edging upward.
TheDistrict’s composite index began signaling a declinein manuacturing activity in mid-2006—a year and ahal beore the recession ocially started.In addition to experiencing the early onset o con-traction, each manuacturing subsector behavedsomewhat dierently beore, during, and ater
Figure 2: Industrial Durables Subsector IndexCompared to Composite Manuacturing IndexFigure 3: Industrial Nondurables Subsector IndexCompared to Composite Manuacturing Index
Composite Manufacturing IndexComposite Manufacturing IndexIndustrial Durables IndexIndustrial Nondurables Index
M   a   y  -  1  1  M   a   y  -  1  1  M   a   y  -  1  0   M   a   y  -  1  0   M   a   y  -  0   9   M   a   y  -  0   9   M   a   y  -  0   8   M   a   y  -  0   8   M   a   y  -  0   7   M   a   y  -  0   7   M   a   y  -  0   6   M   a   y  -  0   6   M   a   y  -  0   5   M   a   y  -  0   5   M   a   y  -  0   4   M   a   y  -  0   4   M   a   y  -  0   3  M   a   y  -  0   3  M   a   y  -  0   2  M   a   y  -  0   2  
Source: Fith District Survey o Manuacturing Activity, Federal ReserveBank o RichmondNote: Monthly data have been converted to three-month, centeredmoving averages to more clearly capture underlying cyclical patterns.Gray area denotes recession.Source: Fith District Survey o Manuacturing Activity, Federal ReserveBank o RichmondNote: Monthly data have been converted to three-month, centeredmoving averages to more clearly capture underlying cyclical patterns.Gray area denotes recession.

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