REGIONAL ECONOMIC INDICATORS POLICY UPDATE DRAFT

EXPORT GROWTH IN OUR REGIONS MANUFACTURING INDUSTRIES

CMAP's regional economic indicators microsite features key measures of metropolitan Chicago's economy and, where
applicable, compares these measures to peer metropolitan areas. The accompanying Policy Update series supplements the
indicators by examining the complex factors that affect our region's economy. This Policy Update builds on the
manufacturing exports indicator to analyze the composition of our regions exports.
The Chicago metropolitan area is home to the nations third largest manufacturing cluster, with over 560,000
jobs in industries ranging from computers and electronics to metalworking and pharmaceuticals. In recent
years, growth of global population and income have led to increased foreign demand for U.S. manufactured
products. Since the recession ended in 2009, national and regional manufacturing exports have grown in value
by 11 and 12 percent per year respectively, underscoring the importance of global commerce in todays
economy.
Now in development, the ON TO 2050 comprehensive plan is likely to build on its predecessor's
recommended strategies for promoting economic innovation and growth of industry clusters. CMAPs
manufacturing exports indicator tracks the value of goods leaving the Chicago metropolitan area destined for
the global market. The indicator captures the value of exports sold by manufacturers in the region regardless
of which port the goods exit the country, emphasizing the importance of our transportation connections to
national and global markets. This Policy Update expands on the indicator analysis by examining export trends
in specific manufacturing industries. On the broadest level, the regions manufacturing exports have grown in
value at a rate consistent with national trends. Drilling down into the exports of individual manufacturing
industries, however, reveals several points of divergence in export growth between the region, its peer
metropolitan areas, and national trends. Understanding these differences can help shed light on changes in
our regions economy.

Metropolitan Chicagos exporting industries

The numerous industry strengths of our region are reflected in the wide range of products its manufacturers
export. Metropolitan Chicago produces exports in nearly every manufacturing industry, ranking among the
top five in 13 of the 21 major manufacturing industries by value. In 2014, the region exported $42.5 billion
worth of manufactured goods. Four industries account for roughly half the regions exports -- computer and
electronic products; chemicals; transportation equipment; and machinery -- with 17 remaining industries
accounting for the other half.

The chart below shows national and regional export growth in select industries between 2009-14. In most
cases, export growth in each of the regions manufacturing industries corresponds with national trends.

Two industries -- petroleum and coal products and beverage and tobacco products -- stand out for growth that
far exceeds the national average. The regions petroleum and coal product exports grew in value by over 1,000
percent between 2009-14, significantly faster than the national increase of 180 percent. The regions beverage
and tobacco exports increased 360 percent, outpacing national growth of 90 percent. Conversely, chemical
manufacturing stands out for its slow regional export growth of less than five percent between 2009-14
compared to 30 percent on a national level.
Exports are an important, albeit nuanced component of a larger, complex picture that depicts the health of
local manufacturing industries. Export values increase and decrease for a variety of reasons, some of which are
unrelated to regional economic growth or decline. For example, increases in input prices can lead to increases
in the value of an industrys exports without creating new jobs or additional output. Also, domestic sales
usually account for the majority of an industrys total sales, meaning that growth in exports may be offset by
declines in domestic sales; the inverse can occur as well. Furthermore, because exports data attribute the full
value of a product to the region where the final good was produced, it does not capture the value-added from
components manufactured in other regions.
The remainder of this Policy Update explores export trends in three of the regions manufacturing industries:
petroleum and coal products; electrical equipment, appliance, and components; and chemicals. The regions
petroleum and coal industry exports have grown faster than those of any other industry, and significantly
outpaced national growth. The electrical equipment, appliance, and component manufacturing industry, a
traditional area of manufacturing strength, has been targeted by federal policy makers for export growth.
Finally, the regions chemicals manufacturing industry exports have grown slower than the national average.
Petroleum and coal product manufacturing
Between 2009-14, the regions petroleum and coal product industry exports grew in value by 67 percent per
year from $300 million to $4 billion, propelling the region from number 15 to 6 among metropolitan petroleum
exports. The industry is the fourth largest contributor to local manufacturing GDP, with total value-added
output of $7.2 billion in 2014 after chemicals ($13.4 billion), machinery ($8.0 billion), and food manufacturing
($7.5 billion).

Growth of the regions petroleum and coal industry exports is linked to crude oil production in western
Canada. Metropolitan Chicago is a major destination for Canadian crude oil, which is extracted from
bituminous sand deposits in Alberta and sent to Chicago by pipeline. In its natural state the crude oil
extracted from these sand deposits is too viscous to flow through pipelines and must first be mixed with
chemicals known as diluents to allow the crude to flow through pipelines. When diluent-rich Canadian
crude arrives at the regions refineries, the refineries extract the diluent from the crude and export it back to
Canada via pipeline. Growth in bituminous sand crude production has led to increasing demand for diluents,
which, in turn, has led to growing diluent exports from Chicago to Canada. Canadas crude oil industry
consumes an estimated 250,000 barrels of diluent per day with demand forecast to reach 900,000 barrels per
day by 2025. In 2010, a major pipeline was opened in order to move more diluent from Chicago to Canada,
coinciding with the regions industry export growth.
Although exports and output have grown substantially in recent years, employment in the regions petroleum
and coal industry has remained steady, growing from 4,941 jobs in 2009 to 5,026 in 2014. The regions three
refineries, Citgos Lemont Refinery, ExxonMobils Joliet Refinery, and BPs Whiting Refinery in Indiana
account for 3,000 of these jobs, or roughly 60 percent of total industry employment. The process of recycling
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and moving diluent may be a significant contributor to increased output, but not require substantial increases
in employment.
Electrical equipment, appliance, and component manufacturing
Metropolitan Chicago ranks second in the U.S. in the export of electrical equipment, appliances, and
components. In 2014, the region exported nearly $3 billion worth of products that generate, distribute, and use
electrical power, such as electric lights, home appliances, and industrial electrical equipment. Since 2009,
regional exports have grown by over 85 percent. By value, most of the industrys exports come from electrical
equipment, with household appliances and lighting equipment accounting for a smaller portion.

The U.S. International Trade Administration has worked to make electrical equipment exports a focus since
the launch of the National Export Initiative in 2010. Some of the growth in industry exports may be attributed
to recent global investment in smart electrical grid infrastructure. Forecasts estimate that international
demand for smart grids products between 2013-20 will grow by eight percent per year.
The region is specialized in industries that make electrical grid components, such as switchgears, junction
boxes, switch boxes, and electrical pole hardware.. Switchgears, which are both manufactured in Chicago and
commonly found in electrical grids, are electrical assemblies that are used to manage the flow of electricity in
electrical grids. Modern switchgears contain integrated microprocessors that capture and transmit
information about the flow of electricity in a grid, allowing electrical utilities or manufacturers to manage
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electricity supply and demand. Smart grid switchgears also function as nodes for connecting renewable power
sources such as wind turbines and solar panel arrays, facilitating more distributed power generation.
Although regional exports in electrical equipment, appliance, and component manufacturing increased 85
percent over the last five years, employment changed little since 2009, holding steady with approximately
19,500 employees in 2014. Nevertheless, the industry remains an area of strength for the region with a location
quotient of 1.65.
Chemicals manufacturing
In 2014 the region exported $6.3 billion in chemicals. The industry, which manufactures a wide range of
products, including pharmaceuticals, agricultural chemicals, paint, soap, and synthetic fibers, is a clear
exception to the pattern of regional export growth aligning with or exceeding national averages. Chemicals
exports from the region grew by less than five percent between 2009-14, while national exports grew by over
30 percent. Despite this slow growth, metropolitan Chicago remains the fourth largest chemicals exporter in
the nation after Houston, New York, and Philadelphia.

The Chicago region lags national export trends in two chemicals industries: agrochemicals and
pharmaceuticals. In particular, the regions pharmaceuticals industry exports fell by 24 percent while national
exports grew by 33 percent. Agrochemical manufacturing, which produces pesticides and fertilizer and saw a
significant decrease in exports, is not a significant part of Chicagos regional economy. The industry accounted
for only 388 jobs in 2014 with a location quotient of 0.35. The decline in exports may indicate other shifts in
this relatively small industry.
Unlike the agrochemicals industry, pharmaceutical manufacturing contains over 17,000 jobs in the region and
has a location quotient of 1.98. Export data show that the regions pharmaceuticals exports have been lagging
behind national trends since the early 2000s. In 2002, the Chicago metropolitan area accounted for 9.1 percent
of the nations pharmaceutical exports by value. By 2014, the region accounted for only 2.3 percent of national
pharmaceutical exports.

Although the regions pharmaceutical exports have been declining, local industry employment has matched
national trends. Between 2001-14 the Chicago metropolitan areas pharmaceuticals industry employment
declined by three percent -- from 18,200 to 17,800 while national industry employment remained unchanged.
Looking forward
The regions manufacturing cluster remains a core component of our economic success. The export of
manufactured products is increasingly important to U.S. manufacturers as the worlds population grows and
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the U.S. economy matures. In order for manufacturers to take advantage of global opportunities the region
will need an innovative and skilled workforce. GO TO 2040 recommended coordinated efforts to increase
economic innovation and support metropolitan Chicagos global competitiveness.
The regions industries and other stakeholders have made advances since the adoption of the plan. A number
of emerging manufacturing technologies, such as additive manufacturing and nanotechnology, have the
potential to dramatically increase the regions manufacturing competitiveness. GO TO 2040 called for
fostering technology transfer between the regions research institutions and industry to help support the
development and implementation of these new technologies. Manufacturers will also need access to a skilled
workforce as new technologies are implemented on the factory floor. The regions workforce investment
boards and community colleges play a critical role in providing training and connecting industry with skilled
workers. As CMAP and its partners work to develop ON TO 2050, outlining opportunities to coordinate
economic development efforts will support the regions long-term vitality.

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