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The Big Picture: How Our Customers Contribute to Economic Growth

By AICC Staff

September 12, 2019

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An expanding economy is what keeps America growing. That growth is best measured by change in the nation’s gross domestic product, better known as GDP. Corrugated boxes made by independent corrugated converters contribute to that growth by protecting products from damage during shipment and storage and by providing point-of-sale promotion, to name just two vital jobs that corrugated boxes perform. Although corrugated boxes contribute to all sectors of economic activity, most are used in the manufacturing sector. We will look at the size of manufacturing industries’ contributions to economic growth.

In the broadest view, 88% of economic activity, or value added, comes from the private sector, with federal, state, and local governments contributing the remaining 12%.

Of the private sector’s contribution to GDP, 65% is generated by services, 13% by wholesale and retail sales, and 9% by agriculture, forestry, mining, utilities, and construction. The remaining 13% of GDP is generated by the manufacturing sector. While 13% may sound like a small share, it amounted to no less than $2.7 trillion last year.

The first division of manufacturing activity is the split between goods expected to be consumed in three years or less, such as food, clothing, etc. (nondurable goods), and those expected to last longer, such as furniture, autos, etc. (durable goods). Durable goods contribute 56% of manufacturing economic activity, while the remainder of domestic manufacturing production is nondurable goods. According to the Fibre Box Association, the nondurable goods sector consumes nearly half of all boxes produced in the United States, while fewer than 10% are consumed by manufacturers of durable goods.

The chart above shows the shares of nondurable goods manufacturing. At more than one-third of the nondurable goods, chemical products of all types make up the largest single category. This category includes cleaning products, personal care products, etc., in addition to industrial chemical products.

Food products, including beverage and tobacco products, account for more than one-quarter of nondurable goods output and are the most corrugated-intensive nondurable goods category. Further down the line are petroleum and coal products such as gasoline, heating oil, etc., at a 16% share. They are followed by paper products and printed products, which add 10% to this sector’s activity. The final categories are plastics and rubber products, and textile goods and clothing, at 8% and 3% shares, respectively. Collectively, these fast-moving goods account for 5% of GDP, or about $1 trillion last year.

The topmost chart below shows the shares of durable goods made in the U.S. Computers and other electronic products account for almost one-quarter of these durable goods. The second-largest category combines primary metals, nonmetallic minerals such as cement, etc., and other goods for long-term usage not included in the other categories shown.

Motor vehicles and parts account for 13% of the category, followed by other types of machinery and fabricated metal products, each contributing 12% to durable goods economic activity. Also providing a 12% share are other types of transportation equipment such as aircraft, boats, trains, trailers, etc. Combined with motor vehicles and parts, the transportation sector accounts for one-quarter of U.S. durable goods economic activity. Finally, furniture and wood products and electrical equipment and appliances contribute 6% and 5% to durable goods GDP, respectively.

Over time, one can expect that each of these manufactured goods categories will contribute either a growing, shrinking, or stable share of economic value added. The middle chart below shows how many percentage points of growth or decay each of the nondurable goods categories has undergone in the 10 years between 2008 and last year.

The fastest-growing contributor to nondurable activity is also the largest category: chemical products. During the past 10 years, it has increased its share of nondurables by 3%. Food, beverage, and tobacco, the second-largest contributor to 2018 GDP, is also the second-fastest-​growing, having increased its share of economic activity by a little more than 2%.

width=493At the other end of the spectrum, gasoline and other petroleum and coal products have given up the most ground, declining by more than 3% over the past decade. Paper products and printing have been hobbled by the growth in electronic communications and have ceded 2.2% over the past 10 years.

The picture is slightly different in the durable goods sector, as shown in the bottom chart at left. Here, the largest industry, computer and electronic products, has lost the most, with its share declining by more than 2% over the past 10 years. And the smallest category, electrical equipment and appliances, has shown the fastest growth, gaining 4% over the past decade.

Independent corrugated converters can use this information to evaluate the different manufacturing sectors of their customers to gain big-picture insight into historical trends and current shares of economic activity.

 


PortraitDick Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.