Manufacturing

Highlights

• Exports of pharmaceutical products, which account for 66% of total exports of merchandise, rose 15.3% in fiscal year 2008, one of the few bright spots of the local economy in 2008.
• The latest figures from the Planning Board have manufacturing output reaching $38.4 billion in fiscal year 2008.

Overview

Manufacturing still represents an important share in total production. Starting in the mid to late 1950's and reaching a turning point during the 1960's, it quickly became one of the engines of economic growth and became the largest sector of the economy, mainly due to its gradual shift into more technology-oriented manufacturing activities.

As the economy developed, some of the initial advantages of the Island have been diluted, such as relatively low wages. New advantages came forward, as a highly skilled labor forced emerged along with favorable tax schemes that helped fuel the Island economy until the end of the century. However, the sector has experienced some setbacks, due in great measure to competition from lower cost locations and the absence of Federal Tax incentives that once helped propel the Island into the forefront of the pharmaceutical manufacturing industry.

Total Output

Manufacturing account for 41.2% of the islands' GDP; or $38.4 billion in value added, in FY 2008. Although its share of total production has moved slightly downward over the previous few years, 2008's share was the first to increase since 2002. However, the rise could be due to an overall contraction of other sectors of the economy and not necessarily an expansion of manufacturing production. Still, manufacturing holds the largest share of GDP of the total economy.

Within manufacturing, the pharmaceutical sector is the most important in terms of production and employment. Total value-added from the sector, increased by 2.2% in 2008 and amounted to $21.7 billion, which in turn represented over 23.3% of total value added in the economy. However, the pharmaceutical sector share has seen a steady decrease in its share since 2005, as a result of changes in the industry worldwide through consolidations and mergers, and a reduction in the production on new products.

Employment

Wages in manufacturing industries are among the highest of the Island. As at April of 2009, the average hourly earnings for workers in manufacturing industries reached $12.16. For the first four months of 2009, the average worker compensation reached $12.20, or 0.9% higher than the average compensation of 2008.

In the chemical sector, the average salary was even higher, as it reached $18.00 in April of 2009, bringing the average salry for the first four months of 2009 to $17.75. The averge salary has risen steadlily since 2001, when it was $14.22.

Higher salaries notwithstanding, the sector has experienced substantial job losses during the past several years. Manufacturing employment declined from an average of 131,800 jobs in 2001 to 101,417 in 2008, representing a net loss of 30,391 jobs in seven (7) years. As of April 2009, employment declined to 94,800 jobs or 7.5% less when compared to April of 2008. For the first quarter of 2009, manufacturing employment has averaged 96,500 jobs. The manufacturing sector employment dipped below the 100,000 jobs threshold in October of 2008, and has remained below this level since, the lowest since the new employment series started in 2001.

These losses have taken place in high-tech sectors, and not just in labor-intensive sectors, such as apparel and textiles, as job losses in pharmaceutical production have accelerated during the last two years. Employment in pharmaceutical companies decreased again in 2008, as the overall numbers of the sector reached 21,800. The average for 2008 was down by 2,792 jobs when compared to the average of 2007. In 2009, the employment numbers were still below the lowest since record keeping started in August of 1991. In April, pharmaceutical employment fell to 21,000, or 11.4% below the jobs averaged in the same month of the previous year. It remains to be seen if the current trend of job losses in all manufacturing sectors can be reversed.

Exports

A high percentage of total manufacturing output is exported to the mainland U.S. with pharmaceutical products accounting for a majority of the value of the sector total exports. Pharmaceutical exports, which represented an average of 61.1% of total manufacturing exports since 1998, reached $42.2 billion during fiscal year 2008. The latest numbers from the Planning Board imply that pharmaceutical exports were up by 15.3% when compared to 2007.

Still, other emerging jurisdictions and the expiration of some patents for blockbuster drugs did stalled pharmaceutical exports since 2003 up until 2007. It is not known if the upward trend registered in 2008 will last through the current fiscal year 2009. Accumulated data up to November 2009 shows that they rose by only 2.1%.

Outlook

It is still too early to see results from the new industrial incentives law, enacted in mid-2007. A combination of lack of aggressiveness in promoting it, plus an economy in recession since 2007, have not helped. The new administration has not announced its strategy for the manufacturing sector yet, although it has supported the implementation of the new incentives law.