Does the Aerospace Decline Explain the Kansas Collapse?

Ironman at Political Calculations thinks so. Unfortunately, in his calculation of Kansas GDP excluding agriculture and manufacturing, he made an error by simply subtracting (chain weighted) real agricultural output and real manufacturing from real GDP (as discussed in the addendum to this post). I’ll re-examine the importance of the shocks to the aerospace industry in Kansas to the slow pace of Kansas growth by looking at contributions to GDP growth, and contributions to employment growth.

Figure 1 depicts a mechanical decomposition of Kansas real GDP growth into agriculture (blue bar), durable manufacturing (red bar), and rest-of-economy (green bar). I focus on durable manufacturing because this encompasses aerospace production the best.

Figure 1: Quarter on quarter (not annualized) contributions of agriculture (blue bar), durable manufacturing (red bar) and rest-of-economy (green bar) to overall Kansas GDP growth, in Ch.2009%. Source: BEA 2016Q1 2nd release, and author’s calculations.

Note that there was substantial drag on growth from the durable manufacturing sector in 2012-13, but that drag has mostly abated; hence we do not have a good explanation for why overall GDP growth has been so slow over the past year.

If we look to employment, one sees a similar pattern, although the drag occurs in 2013-14. By the last quarter of data, aerospace employment (orange bar) is adding to (admittedly lackluster) nonfarm payroll employment growth.

Figure 2: Quarter on quarter (not annualized) contributions of aerospace product and parts manufacturing (orange bar) and rest-of-nonfarm payroll employment (teal bar) to overall Kansas nonfarm payroll employment growth. Source: BLS June 2016 state level employment release, and author’s calculations.

Now, it’s important to recall that each of these graphs depict an accounting exercise. However, even if one thinks about fairly generous multipliers for spending and employment (e.g., 1.7, and 2.9, respectively, from [1]), it’s hard to see how the decline in the Kansas aerospace industry caused the Kansas collapse.

See this post for why drought doesn’t explain the Kansas experience.