Slowdown in Wisconsin in 2016 led by weakness in manufacturing sector

Manufacturing employment last year posted declines in 28 states, including a sharp drop in Wisconsin, where the factory sector is the historic backbone of the state economy.

While a global slowdown and strong dollar contributed to job losses in 2016, so did a wholesale restructuring within the manufacturing economy, which has "hollowed out" many of its rank-and-file assembly line workers, said Michael Hicks, economics professor at Ball State University in Indiana.

Wisconsin’s manufacturers lost 3,784 jobs from December 2015 to December 2016, a drop of 0.8% in the state's manufacturing headcount, which was far steeper than the national average in the sector, according to data released Wednesday.

Weakness among the state's manufacturers weighed on the state's overall 2016 jobs performance.

In terms of Wisconsin's total job creation — including service industries, retailers, construction and other employers — the state gained 11,548 private-sector jobs in 2016, an unusually anemic 0.5% increase that ranks the state 33rd among the 50 states for the period, data show.

Wisconsin trailed the national rate of overall job creation. The United States created private-sector jobs at a rate of 1.3% in the latest 12-month period, more than double Wisconsin's 0.5% increase.

The 2016 data were the worst for Wisconsin since the current expansion began, following the severe 2008-'09 recession.  The 2016 data also were the worst of the six years since Gov. Scott Walker took office in 2011.

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Going by the numbers, Wisconsin has been a slow-growth state regardless of who occupies the governor's mansion. Wisconsin has trailed the nation as a whole in private-sector job growth in each of Walker’s six years in office. Wisconsin also trailed the nation as a whole in five of the eight years under Walker’s predecessor, Democrat Jim Doyle.

But preliminary data suggest that the state and nation might have rebounded in the early months of the current year. Wisconsin’s estimated unemployment rate in April fell to a 17-year low of 3.2%.

In the 2016 report, which is based on the most accurate data available, the data that stand out most strongly are in manufacturing, both in the nation and in manufacturing-heavy states such as Wisconsin.

Politically, leaders in both parties vow to revitalize blue-collar America, often promising to bring back assembly line jobs and the paychecks that once went with them. But in 2016, for the nation as a whole, employment in manufacturing was flat — literally posting a 0.0% growth rate.

Only 22 states saw a net gain in manufacturing jobs in 2016, including Michigan and Indiana. Wisconsin and 27 other states lost manufacturing jobs, including such industry-heavy Midwest states as Ohio, Minnesota, Pennsylvania, Iowa and Illinois.

The plight of manufacturers is surprising given that shop-floor managers across the state complain of their inability to find candidates to fill job vacancies. 

The decline in factory employment is all the more baffling after the Republican-controlled legislature, with Walker’s support, enacted a deep tax cut for manufacturers in 2011. It was phased in and took full effect in 2016. The Manufacturing and Agricultural Credit  slashed the effective rate of state corporate taxes for all Wisconsin-based manufacturers to nearly nothing —  from 7.9% to 0.4%.

At the University of Wisconsin-Madison, economics professor Noah Williams said Wisconsin's manufacturing jobs losses would have been steeper without the tax break. 

"Job growth would have been lower in manufacturing and overall," the economist said in an email.

Average weekly wages fell 4.4% for state manufacturing workers last year, steeper than a 2.8% decline for equivalent national factory paychecks, Wednesday's data show.

The popular perception of manufacturing, and political policy-makers as well, have not caught up with the upheaval that’s reshaping the manufacturing sector. The Congressional Research Service, an arm of Congress, last month quantified how “the concept of mass production, in which large numbers of workers perform repetitive tasks,” is quickly becoming a myth.

Those changes help explain shrinking headcounts and paychecks, the report said:

• Actual production, once the core of manufacturing, is no longer the principal occupation in the sector, with only two in five manufacturing laborers directly involved in making things.
• A third of all manufacturing workers are employed in information technology, design, engineering, finance and management jobs that require education beyond high school.
• Despite a 21% increase in factory output since the low point in the recession, employment in the same period rose only 6%.
• Rank-and-file assembly workers lag many other occupations in pay, including the service industry, which many have dismissed as second-tier employment.

Hicks at Ball State said blue collar doesn't even apply any longer because modern factory workers wear polo shirts with corporate logos and khakis.

Other factors made 2016 difficult for American manufacturers, including economic weakness in China and Europe as well as a strong dollar exchange rate that pounded made-in-America exports for the  past two years, said Chad Moutray, chief economist in Washington, D.C., for the National Association of Manufacturers.

Overall, it was a weak 2016 jobs report — for the nation as well as the state.

While it's standard for Wisconsin to lag the nation, what's different in 2016 is that the nation as a whole appears to have slowed in the pace of job creation. The national increase in 2016 was the slowest since 2010, when the U.S. economy was crawling out of the recession of 2008-'09.

"Wisconsin fared worse than the nation as a whole, but the national picture isn’t one of recession," said Brian Jacobsen, an economist in metro Milwaukee with Wells Fargo Asset Management. 

The job figures were taken from the Quarterly Census of Employment and Wages. They are based on a census of 96% of the state’s employers in both the public and private sectors, making them the most comprehensive data available. The census tracks the economy in rolling 12-month increments, measured every three months.

The quarterly figures are used retroactively to clean up monthly job reports, which are extrapolated from far smaller sample sizes and prone to significant revisions, particularly at the state level.