Author: Dylan Craig
Our previous LEAD Feed analysis raised a puzzling question: why has North Carolina's manufacturing output stagnated while the nation's has grown by roughly 30% since 2004? We showed that NC's Nondurable Goods Manufacturing declined 17% over this period even as the national Nondurable Goods output rose 10%. Durable Goods Manufacturing told a similar story: NC's early gains have eroded, and the state is no longer outpacing national growth.
We identified several potential explanations: structural differences in industry mix (e.g., if the US is in more "advanced" manufacturing sectors than NC), underperformance within specific industries, or some combination of both. This analysis explores those possibilities. Our findings show that nearly all the difference between the state and the nation can be explained by competitiveness within high-level (2-digit NAICS) industries. It's not that NC doesn't have the right mix of "advanced" industries. The issue is simply that NC's manufacturing industries for the most part have not kept pace with US growth.
Breaking Down NC's Declining Share
In 2012, North Carolina accounted for 4.58% of national manufacturing output. By 2024, that share had fallen to 3.53%, a decline of roughly 1.04 percentage points. The analysis focuses on 2012–2024 rather than the full post-2004 period to isolate NC's performance in the modern competitive environment. By 2012, the economy was well into the post–Great Recession recovery, and the earlier period includes major structural disruptions in key NC manufacturing industries such as textiles and furniture. This decline can come from two factors: the industry mix effect and the competitiveness effect.
The Industry Mix Effect reflects changes in the national manufacturing mix. A decline due to industry mix would mean that US manufacturing growth shifted toward more “advanced” industries (like computers and electronics) where NC had less presence, while NC was concentrated in industries (like textiles) that declined nationally. This reduces NC's overall share even if NC's own industries didn't change much relative to their national counterparts.
The Competitiveness Effect reflects changes in NC's relative performance within each industry. A decline due to the competitiveness effect would mean NC's manufacturing industries grew more slowly than their national counterparts, causing NC to lose share within those specific industries.
To find out the size of the industry mix effect, we constructed a counterfactual scenario: what would NC's share of US manufacturing GDP have been if NC maintained its 2012 share within each specific industry (so if NC produced 5% of the nation's furniture in 2012, it still produced 5% in 2024) while the national economy's mix of industries changed to 2024 levels? From here, any remaining part of the decline would be due to the competitiveness effect. Figure 1 shows the results of this decomposition:
Figure 1: Shift-Share Decomposition of NC's Manufacturing Share, 2012-2024
The competitiveness effect accounts for the entire decline (1.04 percentage points) as NC ceded market share to other states across all sectors. The industry mix effect is essentially zero, indicating that shifts in national industry structure neither helped nor hurt NC's position. By 2012, NC’s industry mix had adjusted - it was no longer overexposed to declining industries or underexposed to growing ones.
The Bigger Issue: Industry Growth Challenges
The competitiveness effect of 1.04 percentage point decline is the core finding. Figure 2 translates this into dollar terms, showing absolute changes in NC's manufacturing output by subsector:
Figure 2: NC Manufacturing Real GDP Change by Subsector, 2012-2024
Computer and Electronic Product Manufacturing saw the steepest decline, losing roughly $2.1 billion in real GDP. Chemical, Electrical Equipment, and Food, Beverage, and Tobacco Goods Manufacturing also contracted significantly. Gains in Other Transportation Equipment, Primary Metals, Motor Vehicles, and Machinery helped, but not enough to drive overall growth.
Comparing NC's growth rate to the national average confirms this pattern, as shown in Figure 3:
Figure 3: US vs. NC Manufacturing Growth Rate by Subsector, 2012-2024
Computer and Electronic Product Manufacturing showed the widest gap: the nation grew 40% while NC contracted 30%. In Chemical Manufacturing, another major NC industry, U.S. growth of 37% vastly outpaced North Carolina's decline of 8%. Even in Food, Beverage, and Tobacco (historically a NC strength), the U.S. grew 24% while NC declined 5%. NC did outperform in a few sectors, particularly Other Transportation Equipment (84% vs. 27%) and Machinery (5% vs. -16%), but these gains couldn't offset losses across most other sectors.
Market Share Loss: Product Mix or Productivity?
The competitiveness effect reveals NC ceded market share, but not why. The analysis shows NC's broad industry portfolio (chemicals, computers, food manufacturing, etc.) wasn't the primary constraint. However, challenges likely stem from the state's positioning within those specific categories. Digging deeper into the industries would require more detailed data than is available for state GDP.
Product mix positioning: Within broad Manufacturing categories, NC may be concentrated in lower-value or declining segments. For instance, in 2022, Food, Beverage, and Tobacco Manufacturing was NC's largest Manufacturing subsector by employment at 11.9%. NC ranks #1 nationally for tobacco exports, yet tobacco has been in long-term decline. Similar positioning dynamics could exist in other major sectors such as Chemical Manufacturing (commodity chemicals vs. high-margin pharmaceuticals) or Computer and Electronic Product Manufacturing (basic components vs. advanced semiconductors). In both cases, NC's output in these industries stagnated or declined while national output in these sectors grew substantially. Identifying whether and to what extent the competitiveness effect gaps reflect NC’s positioning in lower-growth market segments would require more detailed subsector analysis.
Productivity and efficiency gaps: NC's Manufacturing productivity more than doubled between 1998 and 2010, when the state ranked 4th nationally in real GDP per Manufacturing worker. However, productivity growth stagnated after the Great Recession, and by 2021 NC had fallen to 12th at $182,287 per worker. The state’s manufacturing sector also shed jobs faster than the national average: employment fell to 57.4% of 1990 levels by 2019 (compared to approximately 72% nationally). Together, these trends may suggest NC manufacturers are generating less total output than their counterparts in other states within the same industries.
These patterns suggest NC's negative competitiveness effect could reflect both what manufacturers produce and how efficiently they produce it. Better understanding which factor matters more would help target policy responses, whether the state should focus on helping manufacturers shift toward higher-value products or on improving productivity through technology adoption and workforce development.
Conclusion
North Carolina's manufacturing challenge stems from losing competitiveness within industries, not from being concentrated in the wrong ones. The zero industry mix effect from 2012-2024 indicates NC's industry portfolio was compositionally neutral at this aggregate level. Instead, the losses came from existing NC manufacturers ceding market share to other states within similar industries, pointing to addressable gaps in product mix, productivity, or other factors rather than a need to grow or attract entirely new industries.