Posted by: Josh Lehner | September 29, 2015

Manufacturing Employment Update

Our office has spent a lot of time lately discussing one of the two reasons Oregon outperforms the typical state during an expansion: migration. However the other reason is in full force today as well: our industrial structure and ties to manufacturing, production and resource industries. In the second quarter, manufacturing was adding jobs at a 4 percent pace over the past year. That is as strong of gains as manufacturing has seen in the past couple of decades and is good news.

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Manufacturing and production/resource jobs more broadly have a more pronounced boom/bust aspect to them over the business cycle. A lot has to do with the durable goods aspect which are generally bigger ticket items (homes, cars, computers, furniture, rail cars, boats, etc). Such products provide over 200,000 generally good-paying jobs in Oregon, however during a recession (and slow recovery) the demand for them dries up. Households that lose jobs cut back considerably on spending and focus on just the essentials. Even households that do not experience job loss also retrench, concerned about losing their job or having enough savings to make it through tough economic times. Having a computer that’s an extra year or three older than your typical replacement cycle is easily managed from a household’s perspective. Same with a car. And same with homes as well, it turns out, evidenced by the big growth in remodeling.

All told, these trends reverse during an expansion and pent-up demand is unleashed, driving sales higher. Along with increasing sales comes increasing employment for the production of such goods. This is where we are today, although the pent-up demand following the financial crisis and scarcity of credit availability has been muted. Except for autos of course.

Looking forward our office is less rosy in the sense we do not expect manufacturing gains of 4 percent to remain for long. This is beacuse historically such gains do not last long, however today the global economic slowdown is a bigger concern as is the stronger U.S. dollar (and Oregon dollar). Furthermore, manufacturing output (the value of the products) usually sees good growth but manufacturing employment generally lags output, due to increased productivity.

The technology cycle is waning and according to both media and firm reports, the state’s largest such business has made layoffs in recent months. The broader forest sector has added some 5,000 jobs in recent years but job growth has slowed in 2015. Until U.S. housing starts move higher, and closer to 1.5 million starts, the industry will see slower job growth. Overall our contacts within the industry are optimistic, seeing as eventually we need those homes due to population growth; it’s really just a matter of timing. Aerospace remains strong and the outlook is OK, although the China slowdown is impacting the industry. Similarly the state’s metal and machinery sectors have done well in recent years, yet the current recession in Canada is a big weight on the industry. These trends and global conditions impact the outlook and call for a relative slowdown in manufacturing, if not outright job losses. This is an ongoing situation, something our office is continuing to monitor. On a more positive note, construction employment should grow along with more housing starts. And food manufacturing continues to do very well and is expected to continue to do so moving forward.


Responses

  1. […] office expects growth to slow somewhat from its 3.5% pace seen earlier in the year, particularly in manufacturing with the global economic weakness and strong U.S. dollar. However every wage indicator we have, […]

  2. […] of our manufacturing job losses. In fact Oregon’s manufacturing sector was adding jobs at a 4 percent pace in recent years. Furthermore, the state’s manufacturing sector is in the same relative […]


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