Lexington, KY - Across the United States, a renaissance is taking place in an industry once thought to be on the brink of death: manufacturing.
According to the Institute for Supply Management, economic activity in manufacturing expanded eight out of 12 months in 2012, although this growth was classified as mostly moderate. Whether Kentucky’s economy has experienced a significant boost from this resurgence may depend on what data is considered and who is asked, but almost everyone agrees that in Kentucky, a vibrant manufacturing industry is vital.
According to the Bureau of Labor Statistics, Kentucky was among several states that experienced significant employment changes in 2012, with its unemployment rate falling from 9 percent in December 2011 to 8.1 percent by December 2012.
But manufacturing jobs in Kentucky grew just 0.6 percent in 2012 to a total of 216,300 jobs, which represents roughly 12 percent of all non-farm employment in Kentucky.
Ken Troske, senior associate dean of the University of Kentucky Gatton College of Business and Economics said while there has, in fact, been an upswing in manufacturing employment in Kentucky, it is important to remember this industry had been on a decline in employment for decades and is likely to continue an overall decline, largely due to advances in manufacturing and higher productivity rates.
“When you talk about manufacturing, it’s important to distinguish between output and employment,” said Troske. “Employment in manufacturing has been declining since the late ’70s. We have seen no significant increasing trend in employment in manufacturing in this country since the late ’70s and, in this state, since the ’80s. So any increase in employment in manufacturing, regardless of how small, would be notable.”
Troske said manufacturing employment in Kentucky “fell off a cliff” starting around 2007, when the recession was in full swing and automotive manufacturers began to feel the pains of sharp declines in consumer purchasing power. Since 2010, Kentucky has seen an increase in manufacturing employment, but Troske believes this is simply a return to the level of employment manufacturing would have realized had the recession been averted.
He acknowledged, however, the significance of this industry to the state’s overall economy.
“[Manufacturing] is close to 20 percent of the economy,” said Troske. “That’s a significant component of revenue flying into the state … If you just look at the private-sector output of the state, we are predominantly a manufacturing economy ... Manufacturing makes up a much larger share of the output in our state than it does in many of the Great Lakes states.”
Kentucky Secretary of Economic Development Larry Hayes dedicates countless hours to deciphering how the state might attract new manufacturers and retain existing ones. He offered a somewhat differing opinion on manufacturing employment in Kentucky.
“It’s hard to quantify how many new jobs are created just because of manufacturing,” said Hayes. “We can certainly quantify the direct jobs, but how many other jobs were created downstream of manufacturing?”
“Manufacturing is unique in that there are large investments that people make, which tend to root them in your state or your community over a period of time,” he continued. “Other types of jobs don’t necessarily have the same investment. You can lease space, and all of the sudden, tomorrow there is a merger somewhere else and you’re out of there.”
He said Kentucky’s improving job-creation rate is due, in part, to the state’s renewed commitment to nurturing existing flagship manufacturers. While other states “fled manufacturing” due to the threat of offshoring, Hayes said Kentucky “stayed the course, and we have the right horses to stay the course, with the automotive sector … GM, Ford, Toyota, and a large number of tier-one and tier-two suppliers.”
“Staying the course,” according to Hayes, meant shifting the focus of state incentive programs to help existing manufacturers retool their plants and expand within the state. In 2009, the state legislature held a special session during which legislation was passed to do just this, and Hayes said the state is now feeling its impact.
“When there is excess capacity in the manufacturing environment, they [manufacturers] have choices to make, and you’ve got to do the best you can to make your state the one where they want to invest,” said Hayes.
One of the state’s most notable successes in recent history was an incentive package negotiated for General Electric that eventually resulted in a $60 million investment by the company in a high-efficiency washing machine facility at its Appliance Park in Louisville, creating 150 new jobs and supporting about 40 domestic suppliers. In February of this year, the company opened its GeoSpring hybrid water heater facility in Louisville, kicking off a $1 billion investment, $800 million of which will be invested in Appliance Park to upgrade its product lines and revitalize several facilities. Last year, GE Appliances hired over 2,500 employees in Louisville, but a dip in appliance sales at the end of 2012 forced the company to furlough its second-shift employees at its refrigeration production plant for five weeks, beginning in late February 2013, to allow excess inventory to be depleted. Despite this setback, GE says plans for new investments at Appliance Park will continue.
“Everything is on track and we anticipate a good year,” said GE Appliances spokesperson Kim Freeman. “This is a normal business practice that we use to align our inventory with current demand.”
With multimillion-dollar investments like these on the horizon, Hayes believes Kentucky is positioned at the forefront of the so-called U.S. manufacturing renaissance, with the state’s flagship automotive manufacturers and suppliers leading the way. He said state incentive programs have allowed industry giants like Ford Motor Company in Louisville to reinvent and retool aging facilities, and as a result, Kentucky now boasts some of the most efficient automotive manufacturing operations in the country.
In January, Kentucky’s Cabinet for Economic Development issued a news release announcing that Kentucky’s automotive industry reached more than one million vehicles for the first time since 2007, and now ranks fourth in the nation for total light vehicle production and light trucks.
But while highly efficient, state-of-the-art facilities are vitally important to today’s advanced manufacturers, success is fleeting without a well-trained workforce to operate these facilities. According to a study conducted by Deloitte and The Manufacturing Institute in 2011, some 600,000 manufacturing jobs remain unfilled in the United States due to the lack of qualified candidates. And as the baby boomer population continues to migrate out of the job market, the workforce crisis continues to mushroom.
Greg Higdon is president and CEO of the Kentucky Association of Manufacturers and believes a lack of skilled workers is the No. 1 issue plaguing manufacturers today, both in Kentucky and across the country.
“There are employees that are leaving the workforce at a very fast rate right now, and we’re not finding that we have a competent, career-minded workforce ready to come into the industry,” said Higdon.
That is why Higdon says he has resurrected the association’s Foundation for Kentucky Industry, a group he hopes will play a role in leading a major cultural change in education in Kentucky and help bridge the skills gap for Kentucky manufacturers.
“We’re cooperating with people in secondary education, postsecondary education, administrative bodies like the Council on Postsecondary Education, the Department of Education, the university systems in Kentucky and the Workforce Development Cabinet,” said Higdon. “We supported legislation at the last session of the General Assembly and an executive order in the summer to move the career and tech out of the Workforce Development Cabinet into the Department of Education.”
Hayes agrees with Higdon and believes the benefits of a well-trained workforce can extend beyond the individual manufacturer.
“Of all of the money you could potentially invest in economic development, the single greatest return to us is those investments we make in training our people,” said Hayes. “Many of them [manufacturing workers] are going to stay with the companies where they’ve been trained, but other ones will be a little more flexible in the workforce. That is something that we can’t do enough of.”