What is going right in manufacturing?

Abstract

This study looks into whether the manufacturing sector has experienced a stronger-than-expected recovery and identifies five potential drivers of the manufacturing sector’s strong performance—tax and regulatory reform, the shale energy boom, technological advances that reduced the labor needed to produce products, increased concerns about protecting intellectual property, and supply chain concerns. Our statistical analysis confirms the manufacturing sector experienced a resurgence in the post-Great Recession era. The Dynamic Factor Model (DFM) approach suggests the realized path of manufacturing employment was stronger than the historical trends. Business cycle analysis indicates the largest average growth rates are reported in the post-Great Recession era compared to other subsamples. Structural breaks are found in all variables. In our view, the policies and events of the past several years were able to stimulate consistent and lasting growth in the manufacturing sector.