Manufacturing Competitive Indexes

As states work to stay competitive in manufacturing, the data that measures their progress can be
overwhelming. In September 2013, the Southern Governors Associations Foundation for the
American South (SGA) began a project
supported with a grant from the U.S.
Economic Development
Administration to strengthen
manufacturing in the region. One
component of the project was the
development of a Manufacturing
Competitiveness Index that allows
policy-makers to aggregate complex
data and inform strategic choices.
To create the Manufacturing
Competitiveness Index, 46 metrics were
compiled for all 50 states, and the US
overall. Every state was ranked for each
individual metric. All metrics
were treated equally with no weighting. These metrics were divided into five sub-indexes,
including manufacturing economic strength, innovation, workforce, business climate, and
infrastructure. These sub-indexes were calculated by taking the average state ranking of the
individual metrics within each category. The sub-indexes help provide a deeper breakdown of
where states may need to shift their efforts in order to become more competitive in
manufacturing. The total manufacturing competitiveness ranking was developed by taking the
average ranking from the five sub-indexes and then giving equal weight to each sub-index.
Data was gathered from public sources including the U.S. Bureau of Economic Analysis, the
National Science Foundation, the U.S. Bureau of Labor Statistics, the U.S. Energy Information
Administration, and the U.S. Census Bureau. Indicators were standardized to account for
differences in state population or economy size. The most recent available data was used,
meaning most data is from the year 2015 or 2014. In order to evaluate time trends, a five-year
percent change was used.

To evaluate how the Southern states performed overall, an average was calculated across the
states for each metric. If the average was below 25.0 than the Southern states generally scored
positively on that metric. If the average was higher than 25.0 the Southern states generally
scored negatively on that metric. This next section will discuss each of the sub-indexes and how
the Southern states fared in the rankings.

Southern States Manufacturing as a Share of GSP 2015

25.0%
19.6%

19.3% 19.4%

20.0%
17.1%
14.5%

15.0%

16.6% 16.2%

15.2%

13.1%

12.8%

11.9%

10.8%
9.0%

10.0%

8.6%

9.5%

5.5%

5.1%
5.0%

0.0%
USA AL

AR

FL

GA

KY

LA

MD MS MO NC

OK

SC

TN

TX

VA WV

Source: BEA.gov Regional Economic Accounts

Manufacturing Economic Strength

States in the American South are not equally dependent on manufacturing. As the chart above
shows, seven states in the region have more than 15% of their State GDP attributable to
manufacturing, while five have less than ten percent. Some states have other sectors such as
energy, tourism or research that are major drivers. This approach to examining manufacturing
strength is not designed to undervalue another growth sector.
The Economic Strength Index evaluated the existing presence of the manufacturing industry
within each state, and also evaluated indicators of overall economic performance. Existing
industry in a state can create a clustering effect and attract further manufacturing to the area.
Clusters have been known to attract other prospective businesses because of the benefit of
higher concentrations of skilled employees and regional suppliers. A strong performing overall
economy beyond manufacturing is important for prospective companies as growth inspires
innovation, talent movement, and investment. The Economic Strength Index consisted of the
following 12 metrics.

Manufacturing Economic Strength Index Metrics

Manufacturings Share of GSP
Change in Manufacturings Share of GSP
Growth in Manufacturing GSP
Manufacturing Establishments as a
Percentage of Total Establishments
Total Manufacturing Employment
Manufacturing Employment as a Percentage
of Total Employment

Change in Real GSP Per Capita

Change in Real Personal Income Per Capita
Change in Real Productivity
Total Exports Per Capita
Change in Total Exports Per Capita
Change in Total Exports

Southern States Manufacturing Economic Strength Index Performance

State
Kentucky
Tennessee
Alabama
Texas
South Carolina
Arkansas
Missouri
Georgia

Economic
Average
Strength
Rank
Rank
11.6
3
12.4
4
15.3
7
17.3
9
17.5
10
22.6
18
25.1
21
25.3
22

State
Oklahoma
North Carolina
Mississippi
Florida
Louisiana
West Virginia
Virginia
Maryland

Average
Rank
25.5
26.0
27.4
33.0
33.3
34.0
36.0
42.3

Economic
Strength
Rank
23
25
28
40
41
44
48
50

Southern states accounted for half of the top ten rankings within the manufacturing Economic
Strength Index, but also half of the bottom ten states. Many Southern states ranked high on
measures of manufacturings contribution to GSP, manufacturing employment, and exports.
States like North Carolina and Louisiana had high rankings in those categories but moved down
because of limited recent growth. The majority of Southern states tended to have slower
growth in real GSP and personal income per capita, indicating slower growth in their overall
economies.

Business Climate Index

Manufacturing has long been sensitive to labor costs and the cost of doing business. These
factors are often cited as critical reasons when manufacturing companies relocate. The
Business Climate Index focuses on wages, taxes, and legal barriers. These metrics are usually
directly related to state government policy and represent clear actions in which states can
make changes to benefit their manufacturing competitiveness. The Business Climate Index
consisted of the following eight metrics.


Business Climate Index Metrics

Manufacturing Industry Health Scorecard
Hourly Minimum Wage

Workers Comp Insurance Premiums

State and Local Tax Costs for Capital-Intensive
Manufacturing
State and Local Tax Costs for Labor-Intensive
Manufacturing
Air Quality

Total Effective Business Tax Rate

Legal Climate Rankings

Southern States Business Climate Index Performance

State

Average
Rank

Virginia
North Carolina
Missouri
Texas
Georgia
Louisiana
Kentucky
Alabama

15.0
15.1
18.0
18.3
18.4
20.1
21.4
22.1

Business
Climate
Rank
2
4
8
10
11
18
21
24

State
Maryland
Tennessee
South Carolina
Oklahoma
Arkansas
Mississippi
Florida
West Virginia

Average
Rank
22.8
22.9
25.4
25.6
27.0
28.5
30.1
38.0

Business
Climate
Rank
25
26
30
31
33
36
39
49

On the Business Climate Index, four Southern states scored in the top ten while only one
Southern state scored in the bottom of the rankings. The majority of Southern states ranked in
the top half of the rankings as well. These scores were driven primarily by low hourly minimum
wages, total effective business tax rate, and state and local tax costs for labor-intensive
manufacturing. Virginia was ranked number one for state and local tax costs for labor-intensive
manufacturing, while Arkansas and South Carolina tied for 1st in the Manufacturing Industry
Health Scorecard. The only indicators for this index in which Southern states did not average in
the top half of the rankings were legal climate and air quality metrics. Overall for the South, the
Business Climate Index was the best ranking index out of the five.

Workforce Index
The availability of a skilled labor force is consistently ranked in the top five factors impacting
site selection by Area Development magazine year after year. In 2016 it was ranked #1.
Today, manufacturing business leaders often complain about difficulties in finding skilled
manufacturing employees such as CNC machinists. As manufacturing becomes more advanced
and computer-based, the importance of STEM education rises when considering the
manufacturing workforce. The Workforce Index measures education, health of the population,

creative class population, and manufacturing productivity. The Workforce Index consisted of
the following nine metrics.

Workforce Index Metrics

Percentage of Population with Adult Obesity
Persons age 18 to 24 Not Attending School,
Not Working, and No Degree Beyond High
School
High School Graduation Rate
Labor Force Participation Rate
Manufacturing Output per Manufacturing
Employee

Change in Manufacturing Output per

Manufacturing Employee
Number of Science, Engineering, &
Technology Degrees Per 1,000 Persons Age
25-34
Age 25-44 Population Growth
Percent Change in Tech & STEM Education
Program Completions

Southern States Workforce Index Performance

State
Maryland
Virginia
Texas
Missouri
North Carolina
Tennessee
Florida
West Virginia

Average Workforce
State
Rank
Rank
16.8
3
Kentucky
19.2
11
South Carolina
20.7
12
Oklahoma
24.4
23
Louisiana
26.1
30
Arkansas
27.0
33
Georgia
28.1
35
Alabama
30.4
40
Mississippi

Average
Rank
30.7
31.9
32.0
32.4
33.9
34.6
36.7
39.4

Workforce
Rank
41
43
44
45
46
47
49
50

For the Workforce Index, only one Southern state cracked the top ten rankings and eight
Southern states populated the bottom ten rankings. The majority of the Southern states fell on
the bottom half of the rankings for workforce. Southern states tended to score more poorly in
labor force participation, obesity, and STEM degrees. On the positive side, the South scored well
on measurements of growth in STEM degrees, manufacturing output, and manufacturing
output growth. These scores were not enough to counteract the poor rankings and the
Workforce Index provided the South with its worst ranking.

Innovation Index
The Innovation Index measured state performance in university technology transfer, patent
development, research & development funding, and venture capital funding. Innovation and
research help spur new manufacturing companies and products. Innovation is a tool that grows

manufacturing from within a region, as businesses are more likely to start and remain close to
their original research connection. An area known for innovation and a talented technological
workforce is more likely to attract businesses looking to relocate. It is also more likely to draw
top talent in the creative class (persons age 25 to 44). The Innovation Index consisted of the
following nine metrics.
Innovation Index Metrics

Technology Licenses and Options Executed

from Universities
Patents Issued

Business Performed R&D as a Percentage of

Private Industry Output
Higher Education R&D in Science &
Engineering Fields as a Percentage of GSP
Venture Capital Funding Per $1 Million of
GSP
SBIR and STTR Funding Per $1 Million of GSP

Patents Issued per 1 Million Workers

Technology Industry Employment Growth
Total R&D as a Percentage of GSP

Southern States Innovation Index Performance

State
North Carolina
Maryland
Texas
Georgia
Missouri
Virginia
Florida
Tennessee

Average Innovation
State
Rank
Rank
13.9
6
Alabama
14.0
7
South Carolina
19.1
16
Kentucky
21.4
19
West Virginia
23.7
27
Oklahoma
23.8
28
Arkansas
26.0
30
Mississippi
29.7
33
Louisiana

Average
Rank
30.8
31.4
36.2
39.6
39.7
41.4
41.6
43.7

Innovation
Rank
34
36
41
43
44
46
47
48

For the Innovation Index, two Southern states were ranked in the top ten while six were ranked
in the bottom ten. Most Southern states ranked below the median 25 rank for this index. North
Carolina ranked high due to its higher education assets and recent technology sector growth.
Maryland ranked high due to high levels of R&D as well as high venture capital and government
funding for small business innovation. Overall, the South scored strongly in university technology
transfer. However, for the majority of the innovation metrics the Southern states averaged a
ranking higher than 25.0 for seven of the nine indicators. The South was particularly weak in
patents per worker and business R&D.

Infrastructure Index
Highway accessibility was ranked as the number one factor for site selection by Area
Development in 2015 and is usually among the top 10 factors. Over 88% of managers

considered highway accessibility as very important or important when deciding on a new

facility, expansion, or relocation. Infrastructure is still tremendously significant for
manufacturing firms because of the need to move products to major markets. The growing
trend of large industrial parks (with large distribution centers) and consumer demand for on-
time, quick delivery also drives the call for improved infrastructure. The American Society of
Civil Engineers currently gives the nation a grade of D+ when it comes to infrastructure,
estimating a needed investment of $3.6 trillion by 2020. These findings show that for economic
development, infrastructure is a quantity as well as a quality issue. Improving aging
infrastructure not only supports current industry, but is also seen as a way to spur growth. The
Infrastructure Index consisted of the following eight metrics.
Infrastructure Index Metrics

Total State Spending on Highways Per

Capita
Average Retail Electricity Price for Industrial
Customers
Percentage of Structurally Deficient Bridges
Growth in Freight Shipments - tons

Growth in Freight Shipments- Millions of

Dollars
Miles of Interstate Highways Per 10,000 People
Average Retail Natural Gas Price for Industrial
Customers
State Transportation Expenditures as
Percentage of Total Expenditures

Southern States Infrastructure Index Performance

State
Texas
Oklahoma
Kentucky
Virginia
Louisiana
Mississippi
West Virginia
Arkansas

Average Infrastructure
State
Rank
Rank
14.0
3
Alabama
18.1
6
North Carolina
19.8
9
Florida
20.9
13
Georgia
22.6
16
Maryland
22.6
16
Tennessee
23.3
19
South Carolina
24.0
21
Missouri

Average
Rank
24.9
27.8
28.0
28.4
29.3
31.1
32.0
33.1

Infrastructure
Rank
24
33
35
36
37
41
43
44

For the Infrastructure Index, Southern states seem to be evenly spread among the rankings
with three states in the top ten and three states in the bottom ten. Most interestingly, some
Southern states that struggled in other indexes scored well in the Infrastructure Index including
Kentucky, Mississippi, Oklahoma, and West Virginia. The Southern states overall scored
particularly well in terms of energy prices averaging in the top 16. Texas had the lowest cost of
retail natural gas for industrial customers across all states as well as the third lowest electricity
price. As a whole, the Southern States averaged on the bottom half of the rankings for state
highway spending and freight shipment growth in tons.

Collectively, the South averaged a ranking of 25th for the Manufacturing Economic Strength and
Infrastructure Indexes, with Southern States dispersed widely across the rankings. The least
competitive rankings for the South were for the Innovation and Workforce Indexes with an
average ranking of 32nd and 35th respectively. The best performance by the South came in the
Business Climate Index with an average ranking of 23rd. Overall, the Southern states average
total rank for manufacturing competitiveness was 28th.
Individually, Texas and North Carolina took overall rankings of 1st and 9th respectively. Beyond
those states, only Virginia and Kentucky ranked in the top half of states overall. Twelve of the
Southern states scored in the bottom half of the overall rankings, with four Southern states
populating the bottom ten rankings.
Overall the American South has significant strengths and opportunities to remain
manufacturing competitive.
SWOT Analysis of the Souths Data for Manufacturing Competitiveness
Strengths
Weaknesses
Slower overall economic growth
Strong existing manufacturing
presence
Low levels of innovation funding
Strong manufacturing output and
Larger amounts of people not in the
industry health
labor force
Tougher legal climate
Excellent business climate (low wages,
low taxes)
Lower investment in highway
infrastructure from state governments
University research and technology
transfer
Opportunities
Threats
Continue to leverage universities to
Workforce aging out and region not
grow technology sector and attract
able to attract millennial workers
innovation assets
Deteriorating highway infrastructure
Workforce development
Lack of innovation assets contributes to
improvements could improve the
slow growth in advanced
Souths competitiveness
manufacturing in the region
With workforce development,
opportunity exists to attract more
advanced high-tech manufacturing
with lower wages and low energy
costs.

Overall Manufacturing Competitiveness Index

Manufacturing

Workforce

Business
Climate

16

12

10

50

10.0

11

23

54

10.8

Iowa

14

31

12

60

12.0

Utah

27

30

71

14.2

New Hampshire

16

10

12

39

83

16.6

North Dakota

23

37

14

84

16.8

Michigan

39

46

95

19.0

Washington

15

15

38

18

95

19.0

North Carolina

25

30

33

98

19.6

Oregon

17

26

17

31

98

19.6

Indiana

25

21

20

29

100

20.0

South Dakota

28

45

16

100

20.0

Wisconsin

20

20

28

25

100

20.0

Illinois

11

17

19

47

101

20.2

Kansas

19

32

27

13

10

101

20.2

Economic
Strength

Innovation

Texas

Minnesota

Infrastructure

Total
Rankings

Average
Rank

Nebraska

19

38

10

14

20

101

20.2

Virginia

48

28

11

13

102

20.4

Colorado

34

35

26

103

20.6

Pennsylvania

12

13

22

26

33

106

21.2

Connecticut

36

15

13

21

23

108

21.6

Massachusetts

30

29

48

109

21.8

Ohio

22

37

18

32

110

22.0

Idaho

32

29

29

14

11

115

23.0

Kentucky

41

41

21

115

23.0

California

13

45

50

119

23.8

Maryland

50

25

37

122

24.4

Montana

26

35

16

44

122

24.4

Missouri

21

27

23

44

123

24.6

Arizona

33

14

36

40

129

25.8

Wyoming

49

50

13

14

133

26.6

Georgia

22

19

47

11

36

135

27.0

Tennessee

33

33

26

41

137

27.4

Alabama

34

49

24

24

138

27.6

Vermont

37

26

28

43

138

27.6

Delaware

39

18

24

31

27

139

27.8

10

Oklahoma

23

44

44

31

148

29.6

South Carolina

10

36

43

30

43

162

32.4

New Jersey

47

20

18

36

42

163

32.6

Arkansas

18

46

46

33

21

164

32.8

New York

35

11

34

40

45

165

33.0

Louisiana

41

48

45

18

16

168

33.6

New Mexico

42

23

48

42

14

169

33.8

Rhode Island

31

23

25

45

47

171

34.2

Mississippi

28

47

50

36

16

177

35.4

Florida

40

30

35

39

35

179

35.8

Maine

46

38

32

41

27

184

36.8

Nevada

45

40

31

34

38

188

37.6

West Virginia

44

43

40

49

19

195

39.0

Alaska

38

49

38

50

21

196

39.2

Hawaii

42

42

42

48

49

223

44.6

11