Manufacturing Powers the U.S. Economy

Manufacturing’s Multiplier Effect Is Stronger Than Other Sectors'

Manufacturing’s production processes are linked to demand for raw materials, energy, construction, and services from a broad array of supplying industries. Many of manufacturing companies’ business and production processes—including those involving nonstrategic components, back-office operations, and some types of logistics—are outsourced to domestic and foreign suppliers that are not counted as part of the U.S. manufacturing sector.

A measure of the breadth of the supply chain is the backward linkage in the input-output structure of the economy. An industry with a large backward linkage induces more production—both directly and indirectly—from other sectors. A mapping of relationships in the economy reveals that manufacturing is #1 in this respect among major sectors. As the demand for manufacturing grows, it in turn spurs the creation of jobs, investment, and innovation elsewhere in the U.S. economy.

The backward linkage—the supplier multiplier effect—shows how much supplier value-added comes from a dollar's worth of value-added for each industry. Every dollar in manufacturing value-added supports $1.08 in value-added from other sectors in the economy. The dollar of manufacturing value-added plus the $1.08 in supply side value-added yields the $2.08 manufacturing upstream multiplier. The finance and professional and business services sectors have much lower supplier multipliers, generating only $0.28 and $0.36, respectively. This measure shows how manufacturing plants have a powerful and positive impact on value creation and communities’ economic development.