There were mixed trends in manufacturing in Southern California during 2006, according to “Manufacturing in Southern California,” which was released today by the Los Angeles County Economic Development Corporation (LAEDC) in conjunction with the WESTEC Manufacturing Technology Exposition and Conference at the Los Angeles Convention Center.
“Orange and Ventura Counties, and the Riverside-San Bernardino area all added factory jobs during 2006, which was counter to the national trend,” said Jack Kyser, Chief Economist, LAEDC. “However, Los Angeles County saw 9,400 factory jobs disappear from 2005 to 2006. Despite this, Los Angeles County was still the nation’s number one manufacturing center.Its 2006 manufacturing employment average of 462,300 jobs was well ahead of number two Chicago’s average of 390,200 jobs. Detroit remained in third place with 268,800 jobs.” The latter two areas also experienced job losses.
The LAEDC report calculated that there were 911,000 manufacturing jobs in Southern California during 2006 (this region is defined as the Los Angeles five-county area plus San Diego County). “This would make the area the nation’s third largest manufacturing ‘state,’ behind California (1,505,000 jobs) and Texas (926,000 jobs),” noted Kyser. “What are the implications of this large factory workforce,” asked Kyser. “This sector represents a huge market for all types of suppliers (goods and services) and means that local manufacturers can find inputs right in their backyard.”
The LAEDC report highlighted some important realities about manufacturing:
- Manufacturing jobs do not tell the whole story of what’s going on in the sector. Firms have made a heavy push to raise productivity by investing in plant and equipment and by using temporary help. Thus, manufacturing output has held at high levels despite the decline in employment.
- When you say manufacturing, most people tend to picture factories belching smoke and unpleasant odors. The reality is that manufacturing in S3outhern California tends to be small-to-medium sized firms often in high-tech type of activities.
- Manufacturing tends to have a higher job “multiplier,” meaning that more indirect jobs in other industries are supported by every direct position in manufacturing.
- Local manufacturing firms are under heavy competitive pressure, often from off-shore production. Many are being wooed by other states who point out the high cost of doing business in California.
Despite the up-tick in jobs seen in some local areas, manufacturing faces lots of challenges. One will come from AB 32, the state’s greenhouse gas legislation. Determining the full impact of this could bring some unpleasant and costly surprises.
The other challenge is industrial real estate. “While the manufacturing employment news for Southern California has been generally downbeat, the industrial vacancy rates for the region have been stunningly good,” said Kyser. “In Los Angeles County at year-end 2006 the rate was 1.5 percent, which was the lowest in the nation. Ventura County had a 2.4 percent industrial vacancy rate, San Diego County was at 3.6 percent, while Orange County was at 3.8 percent.” The LAEDC report pointed out that there are other users of industrial space, including the fast growing international trade/logistics industry, printing and publishing, and the region’s signature industry, motion picture production. And manufacturers are investing in plant and equipment to avoid hiring full-time staff.
“Large blocks of developable land are becoming scarce in Los Angeles and Orange counties, and residential developers have been buying industrial land either for conversion of an existing structure to a “trendy” loft, or to build high-rise residential, many with retail on the ground floor,” Kyser observed. “With the tight real estate market, many industrial firms are nervous that they will soon get significant increases in their lease rates, or, worse yet, have their building sold out from under them. Either event could be devastating,” said Kyser.
The LAEDC report forecast that there would be continued manufacturing employment growth in Orange and Ventura counties and in the Riverside-San Bernardino area in 2007. The latter would move to a new high level of factory employment, an average of 125,200 jobs.
The LAEDC report pointed out that given the challenge of K-12 education in the region, manufacturing can offer a career path that could lead to middle-class economic status. In a recently released quality of life index for Los Angeles County, United Way of Los Angeles noted that the steady decline in the manufacturing sector, which it pointed out provides stable, well-paying jobs, was having an impact on the quality of life in the County.
“We need to pay more attention to manufacturing, as the sector still offers opportunity,” said Kyser. “However, it will take some innovative thinking to stabilize jobs in the sector.”
The LAEDC manufacturing report covers Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura counties. For Los Angeles and Orange counties, and the Riverside-San Bernardino area, it also provides analysis by sub-area.
The LAEDC, the region’s premier business leadership organization, is a private, non-profit organization established in 1981 under section 501(C)(3). Our mission is to attract, retain, and grow business and jobs in Los Angeles County. Since 1996, the LAEDC has helped retain or create more than 128,834 jobs, providing $5.3 billion in direct economic impact from salaries and $91.3 million in annual tax revenue benefit to Los Angeles County.