Nation's manufacturing sector should bounce back in 2011-12

Topic: Miller College of Business

June 18, 2010

Manufacturing will recover to pre-recession levels in the next two years in states with low tax rates, a diverse collection of manufacturing industries and strong government services, says a report from Ball State University.

The 2010 Manufacturing and Logistics Report Card, prepared by Ball State's Center for Business and Economic Research (CBER), grades all 50 states in several areas, including manufacturing and logistics health, human capital, cost of benefits, global position and diversification of industries, state level productivity and innovation, tax climate and venture capital activities.

The report was prepared by CBER at the request of Conexus Indiana, the state's advanced manufacturing initiative. It is available at http://cber.iweb.bsu.edu/research/2010/.

Michael Hicks, CBER director, believes America's manufacturing output could return to the high point of 2006-07 sometime in 2011-12 as companies ramp up production to meet growing consumer demand. Manufacturing is a cornerstone of the U.S. economy and millions of jobs were eliminated during the recent recession.

"There is a great deal of pent up angst to expand or update existing manufacturing facilities or to simply build new ones," Hicks said. "Those states with low tax rates and policies favorable to business creation will be the first to see new facilities in the next 18 to 24 months."

The top five states for best tax climate are Florida, Indiana, Missouri, Montana and Utah while the worst are Alaska, Arkansas, Mississippi, Nebraska and Wyoming.

"The study found that most of the Sun Belt states are enjoying real growth in manufacturing because they've been able to keep taxes low while improving government services, such as funding K-12 schools and higher education," Hicks said. "Unfortunately, many states with small populations and those with inept state governments — Michigan in particular — received poor grades."

He believes Michigan and California may not be able to attract new businesses in the forecastable future because they are cutting school funding and services while raising taxes in order to balance state and local budgets.

Hicks also pointed out that states diversifying their manufacturing activity suffered less volatility than states relying on a single sector such as transportation and the auto industries.

The top five states for diversification are Kansas, Mississippi, Tennessee, Virginia and Washington. At the bottom of the list are Alaska, Idaho and New Mexico with Fs while Arizona, California, Massachusetts, Nevada, Oklahoma, Vermont and Wyoming received Ds.

"Indiana gets an A for manufacturing and tax policies but is too reliant on the auto and transportation industries," Hicks said "However, we are one of many states trying to attract new types of manufacturing and logistics operations. As a state diversifies its manufacturing base, it shouldn't be hurt as badly when a particular industry falls on hard times. This is what happened when the auto industry fell on its face in the last few years."

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