Even non-manufacturers say manufacturing matters

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March 2007 — Vol. 85, No. 2

COVER STORY

Even non-manufacturers say

Manufacturing matters

U.S. manufacturing's impact
Manufacturing in Connecticut: Myths vs. facts
State helping engineers pay off student loans

When a banker, a lawyer and a C.P.A. who work for non-manufacturing firms were asked recently if they thought manufacturing is important to our economy, all had the same thing to say: “Absolutely!”

“We have to make things,” notes Mike Novosel, a C.P.A. and partner in charge of the manufacturing clients of Kostin Ruffkess & Co., headquartered in Farmington.

“Someone’s got to make things,” agrees attorney Craig Sylvester, a partner at the Hartford law firm Reid & Riege P.C. “If we had to import everything, it would be very difficult to maintain a strong economy.”

“Manufacturing absolutely drives our economy,” states Joe Savage, executive vice president of commercial banking for Waterbury-based Webster Bank.

Many benefit when manufacturing thrives

Novosel, Sylvester and Savage work for firms whose clients include manufacturers. But even businesses that don’t deal directly with manufacturers benefit when Connecticut manufacturers prosper.

Manufacturing provides “an economic base for a region such as a state,” explains Edward Deak, an economics professor at Fairfield University. “When you’re a manufacturer, you produce a product within the region’s borders and then sell it outside the borders. That brings in money, which goes to pay employees. They then spend the money, helping to support dry cleaners, grocery stores and so forth.”
Whereas imports send money out of our economy and other types of non-export business circulate money that’s already here, exports bring money in.

“A state grows when it has engines that export,” says Savage.

And Connecticut has a lot of those “engines.” According to Carl Jacobsen, director of the U.S. Department of Commerce Export Assistance Center in Middletown, our state “ranks 48th in population, but it’s the 27th-largest state in dollar volume of exports.” Twenty-one percent of our manufacturers export; the national average is 12%, he says.

Besides importing wealth, manufacturers spread it around. “Manufacturers spend money on services they use, supporting engineering services, legal services, accounting services, maybe architectural services if they’re expanding, marketing services, banking, insurance — the list goes on,” says Deak. “In this way, manufacturing directly supports service jobs.”

Connecticut “has big companies like UTC and Pfizer. But think about the many smaller companies that supply those big companies, all the people that support manufacturing,” says Peter Kent, CEO and chairman of Bicron Electronics Co. in Canaan, and chair of CBIA’s Manufacturers Advisory Council.

Economists estimate that every manufacturing job, in fact, supports up to five jobs in other industries — a larger “multiplier effect” than any other sector’s. “Manufacturing has an enormous multiplier effect,” says Peter Gioia, CBIA vice president and economist. “Most service jobs, with the exception of high-end financial services and insurance, don’t even come close.”

“Manufacturers probably use more services than other types of businesses,” Sylvester observes. For one thing, “They have capital equipment needs and more complicated legal needs.”

Manufacturing “is a substantial part of our customer base,” confirms Webster Bank’s Savage, saying that it accounts for approximately 17% of the bank’s business-lending base. “We lend not only on the working capital requirements of manufacturers but also on the capital investments they have to make. Say you set up a manufacturing business and United Technologies needs you to manufacture very precise parts for their jet engines. You may need your building financed; you need to finance the purchase of raw materials, your labor … Manufacturing is very important to banks,” he says.

Ditto for accounting firms such as Kostin Ruffkess. “We have a lot of small manufacturing clients, mostly precision tooling companies — for example, making parts for Sikorsky helicopters,” says Novosel.

Manufacturing pay, productivity propel prosperity

As an accountant working with manufacturing clients, Novosel knows that these companies provide good jobs.

“You can make a nice living in manufacturing,” which is a plus for the whole community, he says. “There are a lot of ancillary jobs — restaurants, automobile dealerships and so on — that are dependent on people having good salaries."

Manufacturing provides well-paying jobs even for lower-level workers. People without advanced education typically earn more in manufacturing than in service jobs. According to the state Department of Labor, the average weekly production wage in Connecticut as of December was $868 per week, or about $20 an hour.

Deak points out another plus: “Manufacturing diversifies the region’s employment base. Some people have mechanical abilities and want to work with their hands. It provides more job opportunities.”

Manufacturing workers are also highly productive, which helps all consumers. “Manufacturers tend to increase productivity more than other sectors do. They’re typically quicker to adopt new technology that allows them to produce more per worker,” says Savage. “Productivity growth improves our standard of living because consumers can buy more for less money. That drives real wage growth” for residents.

Economy couldn’t survive on services alone

Although services have become increasingly important to our state and national economies, we couldn’t thrive without manufacturing.

“It would be impossible for service companies to fill the void if there were no more manufacturers here,” says economics professor Deak. “Take, for example, insurance and financial services. [Like manufactured products,] they’re exported not only to other states but globally. But to think you could replace the 193,000 manufacturing jobs Connecticut had as of December with service jobs and have the same impact — it is not possible.”

Savage agrees. “Even though we have excellent jobs in financial services, without manufacturing I think the overall quality of jobs here would decline,” he says. Fortunately, he adds, “Connecticut has the outstanding one-two punch of strong manufacturing and very rich intellectual capital in its financial services companies.”

And although the state now has fewer manufacturers than in years past, the industry still has a future in Connecticut, says Deak. “But the nature of manufacturing here is changing. If you go back 50 years, Connecticut was known for brass manufacturing. … Connecticut is now tilting toward companies providing high-value-added products — for example, products that relate to telecommunications, computers, advanced electronics and pharmaceuticals.”

Kent’s company is a good example. Bicron Electronics, which employs about 100 people, makes highly engineered electronic components used in locomotive controls, aerospace, computer peripherals, medical equipment and other products.
“Many of our customers would not be able to make their products without our products,” says Kent.

Threats to manufacturers’ future

A survey conducted by CBIA and Blum Shapiro last summer showed that although Connecticut manufacturers were growing and realizing profits, they were also facing formidable challenges that could jeopardize their future here. Nearly three-quarters of the respondents said their greatest challenge was the overall cost of doing business in the state.

Kent agrees. “We’re one of the highest-cost states,” he says. That means companies like his “need to be more innovative and do things a little better. Our competition is not only other states but global.”

The top cost concern for manufacturers responding to the CBIA/Blum Shapiro survey was the high cost of health care benefits. Energy was listed second, followed by payroll, labor and workers’ compensation costs. Taxes were also cited as a significant concern, with property taxes being the most burdensome tax, followed by the state’s corporate income, personal income and unemployment compensation taxes.

“Access to markets is another [key] issue for manufacturers,” Deak says. “As markets shift [to other parts of the world], you need good transportation networks to get products to market.”

Besides those pressures, Connecticut manufacturers are having a harder and harder time finding qualified workers for their increasingly high-tech jobs.

The problem will only get worse as baby boomers retire. More than three-quarters of state manufacturers responding to a 2005 CBIA survey said they expected up to 20% of their employees to retire within five years. And 94% expected to replace at least some of their workforce by 2010 due to employee retirements. Manufacturers also anticipated a need for more employees as they develop new products, increase sales and expand their companies.

“Manufacturing has a strong future in Connecticut and is a good career choice for many students,” say Lauren Weisberg Kaufman, CBIA vice president and executive director of the CBIA Education Foundation. “We need businesses to work with Connecticut’s educational institutions to teach the skills necessary to meet the needs of industry’s high-skill, high-demand jobs.”

Deak also sees “the need to reinforce the links between manufacturing and higher education and with the training grounds for the next generation of manufacturing workers: the technical high schools. Manufacturers need the highest-quality, high-value-added workers to be competitive.”

Keeping them competitive

In light of manufacturing’s importance to the state’s whole economy, the industry’s competitiveness remains one of CBIA’s top priorities, notes association President and CEO John Rathgeber.

“Manufacturing continues to be one of Connecticut’s great economic strengths,” Rathgeber says. “State policy-makers should build on such helpful efforts as last year’s phaseout of the property tax on machinery and equipment. Acting on CBIA’s legislative priorities for this year — competitive business costs, workforce skills, and dependable energy and transportation infrastructures — will help Connecticut manufacturers compete, grow and create more good jobs here.”

As Novosel, of Kostin Ruffkess, says, “It’s amazing to go around to these companies and see what we make in this country and this state. If they leave, that would be a big loss. Keeping them is very important.”

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