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America's Advanced Industries: New Trends in Brookings Report

Aug. 4, 2016
How well has advanced manufacturing performed over the last three years? In what metro areas is it really booming? And how does the industry move forward from a turbulent and uncertain year?

Manufacturing can attract obsessives. The lure of a perfect product, of an optimal supply chain, of processes improving every year, every month, every week, day, hour, minute, second, all filtered through the newest technology into big data, can be overwhelming.

Every now and then, it helps to step back and look at the industry with a broader perspective.

The Brookings Institution did just that this morning when it unveiled its annual report on “America’s Advanced Industries: New Trends”.  Just like last year, a team from the Institution’s Metropolitan Policy Program dived into 50 industries, 100 American metro areas and more information than most of us can cram in our brains. It is an important read and should serve as an important reference, too, at least until the next report is published around this time next year.

Special Report: IndustryWeek's Coverage and Analysis of "America's Advanced Industries: New Trends"

Among the broadest findings:

  • Manufacturing continues to move forward, albeit with some drift and slowdown.
  • Auto and tech continue to spur the majority of that growth, accounting for more than 60% of U.S. advanced-sector growth during the last three years.
  • The energy sector is in the kind of major slump that not even Elon Musk can turn around all that quickly.
  • Among the 100 largest U.S. metropolitan areas, 85 saw at least some positive change in the number of local jobs in advanced industries, with 38 increasing by at least 3.0% since 2013, and 16 increasing by at least 5.0%.

“Along with improved innovation and training initiatives, stronger labor standards, and a rewoven social safety net, a key element of the needed reconstruction is a metro-by-metro rejuvenation of the nation’s high-tech advanced industries sector,” lead author Mark Muro, senior fellow and director of policy for the Metropolitan Policy Program at Brookings, writes in the paper. “The importance of these high-value innovation and technology industries to any future shared prosperity is why (we) began to focus on the sector in the wake of the 2008 economic crisis.”

The Digitization of Everything

For the purposes of the report and its years of research, Brookings defines advanced industries as “those in which R&D spending per worker ranks among the top 20% of industries and the share of workers with a high level of STEM knowledge exceeds the national average.” The Institution includes 35 manufacturing industries — aerospace, automotive, and medical devices among them — along with 12 service and three energy.

“The physical and digital worlds are converging in these industries as the ‘digitization of everything’ pervades all of its fields,” Muro writes, “transforming nearly all enterprises with software, big data and connectivity to the internet. … The related Internet of Things … is unleashing new ways to optimize the functionality, efficiency, and reliability of physical systems.”

Robotics and machine learning, artificial intelligence, advanced materials, and genomics, among other tech, are all helping “the advanced industries sector … at once develop and utilize the nation’s most transformative technologies.” No surprise when you consider that it conducts 89% of the country’s private-sector R&D and generates more than four of every five American patents.

That relates directly to the advanced industries sector increasing its aggregate productivity 2.7% annually since 1980 — almost twice as high as the rest of the economy — and generating 60% of U.S. exports. The pay is good, too, of course: $95,000 last year for the average worker, a 68% increase since 1975 after adjusting for inflation. Compensation outside the sector has increased 25% during the same period.

What is perhaps the most impressive number, though, is far smaller: just 2.2. That’s the number of additional U.S. jobs created by every new advanced industries job. And the job creation is real: the advanced industries sector now employs about 500,000 more workers than before the start of the recession.

By the end of last year, the sector had added 611,500 jobs to hit about 12.9 million workers, and accounted for $2.8 trillion worth of U.S. GDP — more than 17% of the overall total.

Not everything is perfect in the march toward digitization, though.

Advanced manufacturing has slowed some since 2013, reflecting a “combination of a strong dollar and a major slowing of global demand for U.S. commodity and machinery exports.” Advanced manufacturing still added more than 132,000 new jobs, but 95,000 of those — close to 70% — were in motor vehicles, motor vehicle parts, and motor vehicle body and trailers. Output growth slowed in 18 of the 35 advanced manufacturing industries tracked by Brookings compared to the period from 2010 to 2013, with nine of the industries actually shedding jobs.

An Unsettled Geography of Momentum

As mentioned earlier, among the 100 largest U.S. metropolitan areas, 85 saw at least some positive change in the number of local jobs in advanced industries, with 38 increasing by at least 3.0% since 2013, and 16 increasing by at least 5.0%.

Those numbers give some hope and promise to the continued spread and diversification of industry jobs, at least in metro areas, “where the universities, technology innovation assets, supply chains, STEM workers, and industry clusters on which the sector depends reside.

At the state level, “advanced sector output accelerated across 33 states, but only 20 states saw the pace of their advanced industries’ employment growth accelerate between 2010 and 2013. That means that 30 states saw employment growth slow, which adds to the many questions about the robustness of the nation’s overall advanced industries economy.”

Among those 100 metro areas, 59 actually experienced a slowdown in either advanced sector output or the employment growth rate from 2013 to 2015. (Check back later this week and next week for additional stories breaking down some of the top-performing and top-slumping areas.)

“Many of the trends revealed by this trend are disquieting,” Muro writes. “Although one half of the sector was accelerating, one half was not, and others among the growing industries were progressing sluggishly. The slowing of manufacturing growth and the collapse of employment in the energy subsector means that the advanced sector’s growth base has narrowed.

“Industrial diversity is not just important as a hedge against industry-specific shocks but as a source of innovation in an era of technological complexity and convergence. The higher education demands of the advanced services subsector compared with manufacturing means that some of the fastest growing advanced industries today may be less accessible to those with less education in the next few years.”

So, where does the industry go from here? The continued implementation of technology feels like a given, whether industrial robots, augmented reality or some other combination that best fits your floor. Education at all levels, from STEM for elementary school through ongoing learning for seasoned professionals, should always be a part of the routine. Innovation, too.

“Accelerated, regional advanced industries’ growth and productivity will be key to providing the models, practices, and products and services necessary to drive further productivity gains inside the sector and spark much needed new gains outside it,” Muro writes. “In this vein, federal, state, and local economic development strategies should seek to foster innovation at the advanced-sector frontier while also facilitating the diffusion of the sector’s innovations to industries and firms beyond it.”

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