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Exports, Expertise Key to Chicago's Manufacturing Future

July 30, 2014

Manufacturing is the second-largest business sector in Chicago and easily the biggest driver of trade, but the city lags behind its potential, according to a new report commissioned by HSBC Bank.

Despite the perception that manufacturing is “yesterday’s story,” the report notes, the sector actually is a dominant force in Chicago’s economy:

  • Manufacturing is the second largest industry in Chicago, behind only social services. It added $54 billion to the area’s gross regional product.
  • Manufacturing exports from the Chicago region totaled $66.2 billion in 2013, according to the Brookings Institution, making it the third largest exporting metropolitan region behind Los Angeles and New York.
  • Manufacturing contributed more than $6 billion in direct wages to the Chicago area in 2012.
  • While manufacturing jobs in Cook County (which includes Chicago) shrank from 329,229 in 2001 to 194,189 in 2012, each manufacturing job supports 2.2 additional jobs.

“While manufacturing is an evolving industry, Chicago-area manufacturing and trade in manufacturing will continue to be huge forces in the local economy,” said Richard C. Longworth, a senior fellow at the Chicago Council on Global Affairs and co-author with Phil Levy of the report, “Revival in the Heartland: Manufacturing and Trade in Chicago.”

Exports play a particularly large role in the continued manufacturing strength of Chicago and Illinois, the report points out. According to the Federal Reserve Bank of Chicago, total exports from Illinois have more than doubled from $26.4 billion in 1997 to $68 billion in 2012. The leading exports were machinery ($20.1 billion), chemicals ($7.9 billion), transportation equipment ($7.3 billion), computers and electronic products ($6.2 billion), electronic equipment ($3.3 billion), food products ($3.1 billion) and fabricated metal products ($3 billion).

Manufactured goods accounted for two-thirds of the metro Chicago area’s exports in 2013, according to the Brookings Institution, a total of $44.7 billion. As the area’s manufacturing industries have evolved toward higher tech products and processes, they have been able to run a $25.3 billion domestic trade balance.

“Internationally, it runs a slight deficit,” the report adds. “But that deficit contributes to the city’s trading prowess because much of it consists of fuel oil, metallic ores, agricultural products, textiles and wood products – all raw materials for the products that the city makes and ships out.”

While exports are helping power manufacturing in Chicago, the report notes that they are not growing as fast as some other major metropolitan areas. According to Brookings data, the region’s exports grew at an annual rate of 7% since 2009, but that ranked the region 40 out of the top 100 areas.

Chicago’s status as a leading export generator will stand it in good stead in the future, the report finds. It quotes William Testa, an economist with the Chicago Fed, that developed countries trade most actively with each other and so as Asian and Latin American economies grow, that will lead to more trade with the Chicago area.

Chicago will also benefit because it is a leading center of manufacturing knowledge and innovation, the report notes. It cited the city’s “rapturous reception” of news that it would be the location for the Digital Manufacturing and Design Institute, one of the Obama Administration’s public-private institutes designed to promote advanced manufacturing in the U.S. Some 23 universities and 40 corporations are backing the institute, with an investment of $250 million alongside the federal investment of $70 million.

The Chicago area also has strong business and professional services related to manufacturing and these will be in growing demand by developing economies, the report states.

To fully realize its potential in manufacturing, the report states, Chicago must focus on innovation efforts such as the 1871 business incubator and the digital manufacturing laboratory. It also should support efforts to negotiate new trade agreements such as the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership, and beef up resources for the Census Bureau and other government agencies that track trade data. The financial sector needs to do more to support advanced manufacturing and start-ups.

But the report says the primary action Chicago and the Midwest as a whole should do is take “an integrated regional approach to its global future,” where states stop battling each other to lure businesses and instead leverage “their economic and intellectual assets to strengthen the region as a whole.”

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