Analysis: The far-reaching impact of Colorado’s manufacturing industry

According to the U.S. Bureau of Economic Analysis, the 2016 nominal GDP of Colorado's manufacturing industries was $22.6 billion, with 160,000 jobs, making up approximately 7 percent of the state's total production and 4.4 percent of total jobs (including covered workers and proprietors). Among all 50 states, Colorado's manufacturing share of GDP ranked 41st, below the national average of 11.8 percent. While the size of Colorado's manufacturing industry is relatively small compared to the rest of the country, local manufacturers have an extensive impact on all industries throughout the state. With the multiplier effect, direct industry activity supports a total of 441,000 jobs in the state, and contributes approximately $47 billion to state GDP.

In order to illustrate the industry's upstream and downstream connections to other industries, we examined data from IMPLAN, an input-output economic model that includes estimates of purchases between industries. According to the model, manufacturing sales in Colorado totaled $68.4 billion in 2016. This $68.4 billion output includes $47 billion of intermediate inputs and $21.4 billion of value added (the approximate contribution of manufacturing to the overall state GDP). Value added consists of $11.5 billion of employee compensation, $8.3 billion of other property type income (including corporate profits, rents, and interest), $713 million of proprietor income, and $857 million in taxes on production and imports.

Of the $47 billion in intermediate inputs, a substantial share comes from within the state. Colorado manufacturers purchased an estimated $21.4 billion from other private Colorado companies, while an additional $19.8 billion were purchased from firms in other states and $5.6 billion were purchased from outside the United States. Conversely, Colorado industries purchased $10.9 billion worth of inputs from manufacturers, while an additional $37.2 billion were purchased by domestic industries outside of Colorado and $8.3 billion were purchased internationally.

In addition to sourcing commodities from industries, local manufacturers also purchase their intermediate inputs from other institutions. Purchases from households exceeded $80 million, while purchases of goods and services from federal, state, and local governments totaled $86.3 million. Additional purchases of capital, including scrap materials and second-hand goods, were $52.4 million.

Within the state, Colorado’s manufacturing sector has a total upstream contribution of $21.4 billion, meaning that manufacturers purchase $21.4 billion in inputs from suppliers located in Colorado. In comparison, the downstream contribution of the manufacturing supply chain totals $10.9 billion; this means that firms in all industries around the state purchase $10.9 billion of goods from Colorado manufacturers, with the bulk of sales occurring outside the state. These state-level upstream and downstream contributions only take into account estimated transactions between Colorado firms (of course, local manufacturers both purchase and sell goods outside of the state as well).

The manufacturing sector transacts with all other industries in Colorado, both buying and selling goods and services. There is also substantial trade between firms inside the manufacturing industry. As inputs to their own production, individual manufacturing firms may purchase goods produced by other manufacturers (the value of these goods sold by manufacturing firms to other manufacturing firms is approximately $4.9 billion).

Outside of the manufacturing sector, the top five industries that supply inputs to manufacturers are: Wholesale Trade ($4 billion); Management of Companies ($2.5 billion); Agriculture, Forestry, Fishing, and Hunting ($2.1 billion); Mining ($1.6 billion); and Transportation and Warehousing ($1.4 billion). The top five non-manufacturing industries that purchase goods from the manufacturing sector are: Construction ($1.9 billion); Accommodation & Food Services ($548.3 million); Health and Social Services ($490.7 million); Information ($489.5 million); and Transportation and Warehousing ($441.5 million).

Brian Lewandowski is the associate director of the Business Research Division at the Leeds School of Business, University of Colorado Boulder. He may be contacted at Brian.Lewandowski@colorado.edu. Michael Hansen, a student research assistant with the University of Colorado's Business Research Division, co-wrote this column. He may be contacted at Michael.Hansen@colorado.edu. Visit www.colorado.edu/business/brd for more information.