CRI Focus Areas


What will save Delaware Manufacturing?

11/28/2018

Delaware manufacturing was hit hard by the "Great Recession". Between 2007 and 2012 total manufacturing jobs dropped almost 25% and the number of manufacturing establishments in the state fell 15%. Manufacturings annual payroll in Delaware shrank by over $366 million, a drop of 21%. The total value of manufacturing shipments went down by 12%.   How did Delawares manufacturing firms cope with these seismic shifts? Some answers can be found by comparing 2007 and 2012 data on Delaware manufacturing from the annual census of manufacturing activities.   The obvious first response to a drop in revenue is to cut back employment and reduce payroll while curtailing pay increases. The average manufacturing wage in Delaware rose only a total of 5% from 2007-12 and the average wage of workers who were physically making the products actually fell by 2%!   Delaware manufacturers also restructured fringe benefits, resulting in larger reductions than just reducing payroll. The biggest savings was in the category of "other" benefits, which includes life insurance, disability, workmens compensation, unemployment insurance, and social security. Manufacturers saved almost $117 during this time period. This was accomplished primarily by shifting as many workers as possible from full-time status to temporary, as the temporary workers receive very few, if any, benefits.   Delaware manufacturers also shifted pension payments from defined benefit plans to having a majority of payments going to defined contribution plans. This significantly reduces the future liability commitments of the manufacturing firms.   Delaware manufacturers cut the quantity of electricity purchased by more than one-third. As Delawares industrial electric rates have risen above the national average, it stands to reason the more intensive the electrical need of the manufacturer, the more likely they are to move to a state with lower electric rates. Inventories were trimmed, especially in the area of materials and supplies.   Capital spending dropped $93 million, or 23%, from 2007-2012. The deepest cut was in capital spending on machinery and equipment (around $69 million) followed by capital spending on buildings. Capital spending on computers and data processing equipment plunged by over 50%, aided in part by a substantial drop in equipment prices in that market.   Delaware manufacturers also reduced their rate of retiring and scrapping old equipment by 75%...getting more life out of the existing capital they already owned. Meanwhile, spending on machinery and equipment rentals by 61%, helping manufacturers avoid debt and obsolescence.   Other than purchasing professional and technical services and advertising, Delaware manufacturers cut spending on items such as insurance, travel, training, transportation, and office supplies to the tune of almost $366 million. This, of course, substantially reduced the multiplier effect of manufacturing on the states economy.   And manufacturers fought against an almost one-third drop in value-added in production through a two-thirds increase in the value of resales, making up about half the ground lost in value-added.   There is no doubt that Delaware manufacturing has been through extremely tough times these last few years. The firms which survived did so by making tough, but logical, business decisions. Hopefully this battle hardened remnant will provide the core for a manufacturing rebound in the First State.     Dr. John E. Stapleford President


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