A recent resurgence in manufacturing can only be sustained if state and federal legislators address these important barriers.
By Scott Staruch
Today, the old notion that the U.S. was heading towards a service-based economy has been replaced with a resurgent manufacturing sector, one that supports one in six private sector jobs. In July, U.S. manufacturing expanded for the 14th consecutive month with a Purchasing Managers Index (PMI) of 57 percent – an increase of nearly 2 percent over June.
Locally, the Federal Reserve Bank of Philadelphia’s July Business Outlook Survey found that manufacturers in the Philadelphia region expanded at the fastest pace since March 2011, and firms remain optimistic about continued growth for the rest of 2014. Four measures will secure and enhance the area’s position as a manufacturing leader.
Energy advantage
Pennsylvania’s diverse and abundant energy portfolio provides local manufacturers a significant advantage over competing states and countries. Affordable and price-predictable energy will further serve as an economic development tool to attract new manufacturers and jobs.
The state’s rich natural gas supplies are well known and production continues to hit new benchmarks. The recent July Drilling Productivity Report from the Energy Information Administration found natural gas production in the Marcellus Region exceeded 15 billion cubic feet per day through July – compared with 2 Bcf/d in 2010.
To nurture this, it’s crucial not to overburden the industry with excessive taxes. Additionally, allowing manufacturers to leverage local natural gas for their facilities, operations and natural gas liquids for chemical feedstocks, expanding pipeline capacity is critical.
“Natural gas production in the Appalachian Region continues to set new milestones and strengthen energy security,” says Dan Whitten of America’s Natural Gas Alliance. “Recent data from the Energy Information now shows that the Marcellus Shale is the most productive shale region in the nation, accounting for about a quarter of all the natural gas we use in the United States.”
“For Pennsylvania manufacturers to fully take advantage of this local supply, new infrastructure is essential,” adds Whitten.
Infrastructure investment
Just as pipelines are necessary arteries to bring energy to manufacturers, equally important is transportation infrastructure.
Earlier this year, National Association of Manufacturers (NAM) President & CEO Jay Timmons told the Senate Committee on Environment and Public Works, “While many of our members predominantly depend on motor carriers to deliver finished products to their customers, manufacturers rely on air freight to deliver time-sensitive and high-value cargoes, railroads for raw materials and finished products, inland waterways for bulk-sized movements and seaports for access to overseas markets.”
Bob Latham, executive vice president of Associated Pennsylvania Constructors, explains, “Pennsylvania took a great step forward last year with the passage of Act 89 … Congress has propped up the Highway Trust Fund through May 2015, but it’s imperative a long-term comprehensive program with growth be adopted at the national level.”
Regulatory reform
For manufacturers, reversing the tide of burdensome regulations will enable continued innovation and entrepreneurship. In 2013, the cost of federal regulatory compliance was estimated at $112 billion, resulting in over 67 million hours of paperwork. There are over 3,000 federal regulations in the pipeline, and it’s essential these regulations be fully vetted for their impact on our manufacturers. Consider an effort to change how the Internet is regulated: wired/wireless net-works and Internet speeds are vital for manufacturers and consumers. Hampering innovation by over regulating one of the most dynamic industries with an 80-plus-year-old law is an example of misguided regulation threatening manufacturers, especially for the tech industry that employs over 205,000.
Tax reform
U.S. manufacturers face the highest combined corporate tax rate in the developed world at 39 percent — compare this with the Organization for Economic Co-operation and Development (OECD) average of 25 percent. In addition, Pennsylvania has the distinction of having the highest state corporate tax rate — at 9 percent. Even with tax relief measures, over-bearing federal and state corporate taxes put state manufacturers at a devastating pricing disadvantage across industries and the globe. Without serious corporate tax reform, manufacturers and businesses are faced with increasing prices, losing customers and cutting jobs. Unlocking success Pennsylvania energy, infrastructure investments, sensible regulations and tax reform are the keys that will unlock many doors to sustained manufacturing growth. Of course, it’s ultimately the human element and ensuring the region’s workforce has the necessary skill sets that will carry manufacturers over the threshold.
Scott Staruch can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..
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