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The Importance of Manufacturing

Manufacturing is essential for economic stability and robustness. This is due to the unique role that manufacturing activities play in how money moves about within a given economy.  In a report titled The Flow of Money, economist William H. Fruth describes with clarity this phenomenon:

Money is imported to an area principally by the business activity of the “primary” or contributory industries located within the economy.  A primary industry is one that sells its goods or services outside the geography of the local economy, importing money to the local area…When a local manufacturer sells its products to a buyer in another community or state, money flows into the home community.  In nine out of 10 local economies, manufacturing is still the most important contributory industry.

Manufacturing and California

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Manufacturing also has a high job multiplier effect.  As noted by a 2009 manufacturing report from the Milken Institute: “For every job created in manufacturing, 2.5 jobs are created in other sectors.”  For science, technology, engineering, and mathematics (STEM) related manufacturing, the job multiplier effect increases. For example, 16 other jobs are generated from one electronic computer manufacturing job.

SECTOR JOB MULTIPLIER NUMBER
Business Services 1.63
Transportation 1.66
General Manufacturing 2.5
Electronic Computer Manufacturing 16
Sources: Milken Institute, Economic Policy Institute

Click here to read the Milken Institute report.