Economy Now
The manufacturing powerhouse you never thought of
June 10, 2013: 5:17 PM ETGuess which state had a manufacturing boom last year? It's not in the Rust Belt, nor the South, and autos have nothing to do with it.
Oregon comes out on top.
Manufacturing made up 39% of Oregon's GDP last year -- more than any other state:
Oregon's gross domestic product grew 3.9% last year, making it the third fastest-growing state economy after North Dakota and Texas, according to Commerce Department data released last week. Unlike those states, which benefited from an energy boom, Oregon drew about two-thirds of its growth from durable goods manufacturing.
Digging deeper into the data reveals a meteoric rise at a time when manufacturing activity was stagnant, or even declining, in more traditional manufacturing states.
Oregon's manufacturing output has multiplied 8x since 1997.
About 15 years ago, manufacturing only accounted for about $9 billion, or 9%, of Oregon's economy. By 2012, it had risen to $74 billion, or a whopping 39% of Oregon's entire economic output -- the highest proportion of any state.
Oregon isn't large. By GDP, it ranks 25th in size among the 50 states. But its manufacturing sector has risen so rapidly that Oregon now ranks sixth in manufacturing output, surpassing even states like Indiana, Michigan and Pennsylvania.
How did this happen?
It has everything to do with computers and electronics, with Intel (INTC) leading the way, according to Josh Lehner, an economist for Oregon's Office of Economic Analysis. The company is based in California, but has been expanding its chip manufacturing plants, as well as its research and development headquarters in Hillsboro, Oregon.
Electronic integrated circuits, processors and controllers were Oregon's largest export last year. Intel alone now operates six sprawling campuses west of Portland and employs roughly 17,000 people in the state, making it Oregon's largest private employer.
"We are a new-line manufacturing state these days -- computers and high technology and the like -- unlike the Rust Belt, which was more old-line manufacturing, or the older textile mills in the South that left during the 1990s," Lehner said.
But that history has him a bit worried. If Oregon doesn't diversify its economy, it risks following the same path as a Michigan or Pennsylvania in the future.
"Some day our high technology will be considered old-line and in decline unless we keep upgrading and expanding. That's our real concern," he said. "It isn't the industry today, it's what is going to happen five to 10 years from now."
The tech-related manufacturing boom has not translated into significant job growth. In fact, data from the Bureau of Labor Statistics shows about 19,000 people dropped out of Oregon's labor force last year. Going back further reveals that Oregon's manufacturing jobs peaked in 1998 and have largely been on the decline since then.
Oregon's manufacturing jobs have declined
In a way, economic shift was predicted by Intel co-founder Gordon Moore, back in 1965. He wrote a paper about a trend he observed, now known as Moore's Law: Microchip manufacturers can double the number of components on a piece of silicon every 2 years.
This trend has held true for more than five decades. In a place like Oregon, it means that the value of what local manufacturers are creating is growing exponentially. But as productivity increases, it also means that greater economic output can easily be achieved while maintaining an existing workforce.
"Job growth and personal income growth has been flat and trailing other states," said John Tapogna, president of ECONorthwest. "That's a big concern for us."
Read more about the fastest growing states in the U.S.
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