QUARTERLY 2022 VOLUME 16, NUMBER 3 

COMMUNITY BANK PERFORMANCE IN 

MANUFACTURING-CONCENTRATED STATES 

INTRODUCTION The U.S. manufacturing industry has undergone fundamental changes 

in recent decades as production and employment in traditional 

manufacturing has shifted. The changes are important for the 

economies of communities that rely on manufacturing firms and 

for community banks that offer financial services in areas where 

manufacturing firms have a presence. Although some manufacturing 

sectors have declined, others have expanded. Much of the resilience 

in the manufacturing industry in recent decades is aligned with a 

transition in some subsectors to more advanced manufacturing. The 

community banks that lend in manufacturing-concentrated areas 

maintain a higher share of commercial loans in their portfolios, 

suggesting they support manufacturing industries in their areas. 

Community banks headquartered in manufacturing-concentrated 

states also reported higher net interest margins before the 2008 

financial crisis, and a higher pretax return on assets. While the 

manufacturing industry was weakened by the COVID-19 pandemic, it 

recovered much more quickly than in previous recessions, brightening 

the outlook for community banks that support manufacturing 

businesses.1 

Manufacturing continues to be a broad and important segment of 

U.S. output, even as the U.S. economy has evolved. The manufacturing 

industry accounted for roughly 11 percent of gross domestic product 

(GDP) as of 2021.2 Although this share has fallen a few percentage 

points since the early 2000s, it has stayed around 11 percent since 

the end of the 2008 recession. Manufacturing spans a broad range of 

industries (see inset box for firms included in manufacturing) and 

is an important part of economic output across many states. Despite 

decades of structural change in some industry subsectors, many of 

which experienced steady declines in employment, four of the top five 

subsectors in terms of dollar value of production have been consistent 

since 2000. Chemicals, petroleum and coal products, transportation 

equipment, and food manufacturing have all consistently been in the 

five largest subsectors since 2000, and collectively made up more than 

half of total manufacturing output nationwide as of 2021 (Chart 1). 

During the mid to late 2000s, fabricated metal products was pushed out 

1 Community banks in this study are defined using the FDIC definition for community bank as found on page 26 of the Quarterly Banking Profile. For more information on 

community banks, see the 2020 FDIC Community Banking Study. 

2 Calculated from Table 14 of the Bureau of Economic Analysis, “Gross Domestic Product (Third Estimate), Corporate Profits, and GDP by Industry, Fourth Quarter and Year 

2021,” news release BEA 22-13, March 30, 2022. Industry groupings generally follow the North American Industry Classification System (NAICS). A detailed discussion of the 

manufacturing sector as classified NAICS code 31 is available from the U.S. Census Bureau at: https://www.census.gov/naics/?input=31&chart=2022&details=31. 

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of the five largest subsectors as computer and electronic products rose 

steadily and became the largest single subsector in December 2020. 

The subsectors with the largest employment have also been broadly 

stable since 2000, especially as the manufacturing industry shed 

jobs in the early 2000s. Food, transportation equipment, fabricated 

metal products, computer and electronic products, and machinery 

are consistently the largest employers in the manufacturing industry, 

and as of 2020 made up more than half of total employment in 

manufacturing nationwide (Chart 1).3 

Chart 1 

The Top Five Manufacturing Subsectors Account for More Than Half of

Total Manufacturing Output and Employment 

Share of Manufacturing Output Share of Manufacturing Employment 

Percent Percent 

18 14 

16 12 

14 

10 12 

10 8

8 6 

6 4 

4 

2 2 

0 0 Computer Chemical Transportation Petroleum Food Food Transportation Fabricated Computer Machinery

and Electronic Equipment and Coal Equipment Metal and Electronic Products Products Products 

Sources: Bureau of Economic Analysis GDP by Industry and Bureau of Labor Statistics Establishment data (Haver Analytics). 

Note: Data as of 2020. 

INDUSTRIES INCLUDED IN MANUFACTURING 

Descriptions of manufacturing activity can evoke images of the production of heavy machinery, like airplanes or 

automobiles, but what American workers produce is much broader. The U.S. Census Bureau industry classification 

of the manufacturing sector comprises any firm that transforms raw materials or assembles components into 

new products. Firms engaged in manufacturing can be plants, factories, mills, or smaller establishments that sell 

on the same premises they produce, like bakeries. Some forms of production that may seem like manufacturing 

are in fact their own industry, construction being one example. The U.S. Census Bureau classifies manufacturing 

firms as those that are engaged in production ranging from food and meat, textiles and apparel, woodworking 

and furniture, petroleum and chemical manufacturing, pharmaceuticals, metals and machinery, and advanced 

technology—including semiconductors and cars—a range of activities indicative of the breadth and depth of 

production in the United States. Manufacturing includes the production of both durable goods that have an average 

life of at least three years, like washing machines or furniture, and nondurable goods that have an average life of 

less than three years, like food or textiles. 

3 Data on output of the manufacturing industry at the national and state level are available from the Bureau of Economic Analysis GDP by State and GDP by Industry. Data on 

employment for the manufacturing industry by subsector are available from the Bureau of Labor Statistics Establishment Data. 

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QUARTERLY 2022 VOLUME 16, NUMBER 3 

Over the past 20 years, much of the manufacturing in the United 

States has transformed from traditional to advanced manufacturing. 

Other research has studied this transformation to advanced 

manufacturing, defined as any subsector that has a higher amount 

of research and development spending per worker than most other 

industries and requires workers with more degrees in science, 

technology, engineering, and math (STEM).4 The transition to 

advanced manufacturing has been driven by new technologies such 

as robotics, 3-D printing, and the digitization of information. From 

2000 through 2020, manufacturing output in the United States 

increased from $1.8 trillion to $2.2 trillion per year (Chart 2). The 

growth in manufacturing output has largely been driven by the 

advanced manufacturing subsectors listed in Table 1. Output in the 

advanced manufacturing sectors increased from $991 billion in 2000 

to $1.5 trillion in 2020 in inflation-adjusted 2012 dollars. In contrast, 

output from the traditional manufacturing subsectors fell from 

$824 billion in 2000 to $767 billion in 2020 (Chart 2). 

Chart 2 

Advanced Manufacturing Output Has Risen While Traditional Output

Has Declined Since 2000 

600 

800 

1000 

1200 

1400 

1600 Traditional Advanced 

$ Billions (2012 Dollars) 

400 

200 

0 

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 

Sources: Bureau of Economic Analysis Gross State Product and Moody’s Analytics. 

4 For this article, advanced industries are as defined in Mark Muro, Jonathan Rothwell, Scott Andes, Kenan Fikri, and Siddharth Kulkarni, “America’s Advanced Industries: 

What They Are, Where They Are, and Why They Matter,” Brookings Institution, February 2015. Brookings identified 35 advanced manufacturing subsectors by four-digit NAICS 

codes using two criteria: research and development spending per worker and the share of workers with a high degree of STEM knowledge. A subsector qualified as advanced 

manufacturing if it spent more than $450 per worker on research and development activities, which put it in the top 20 percent of all industries, and if the share of workers 

with STEM knowledge exceeded 21 percent, the national average for all industries. Brookings identified 15 additional subsectors spread across energy and services industries 

not included in FDIC calculations for advanced manufacturing. 

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Table 1 

35 Manufacturing Subsectors Constitute Advanced Manufacturing 

Subsector 

Share of 

Manufacturing 

Output 

(Percent) Subsector 

Share of 

Manufacturing 

Output 

(Percent) 

Petroleum and Coal Products Manufacturing 11.1 Resin, Synthetic Rubber, and Artificial and Synthetic 

Navigational, Measuring, Electromedical, and Fibers and Filaments Manufacturing 0.9 

Control Instruments Manufacturing 6.5 Industrial Machinery Manufacturing 0.8 

Pharmaceutical and Medicine Manufacturing 5.5 Foundries 0.8 

Semiconductor and Other Electronic Component 

Manufacturing 4.4 Motor Vehicle Body and Trailer Manufacturing 0.7 

Basic Chemical Manufacturing 4.3 Ship and Boat Building 0.7 

Aerospace Product and Parts Manufacturing 4.3 Pesticide, Fertilizer, and Other Agricultural Chemical 

Manufacturing 0.6 

Communications Equipment Manufacturing 3.4 

Medical Equipment and Supplies Manufacturing 2.9 Engine, Turbine, and Power Transmission 

Equipment Manufacturing 0.6 

Motor Vehicle Manufacturing 2.9 Commercial and Service Industry Machinery Motor Vehicle Parts Manufacturing 2.7 Manufacturing 0.5 

Iron and Steel Mills and Ferroalloy Manufacturing 1.7 Alumina and Aluminum Production and Processing 0.5 

Computer and Peripheral Equipment Manufacturing 1.6 Other Nonmetallic Mineral Product Manufacturing 0.4 

Other General Purpose Machinery Manufacturing 1.4 

Agriculture, Construction, and Mining Machinery Household Appliance Manufacturing 0.4 

Manufacturing 1.2 Electric Lighting Equipment Manufacturing 0.3 

Other Chemical Product and Preparation Clay Product and Refractory Manufacturing 0.2 

Manufacturing 1.1 Other Transportation Equipment Manufacturing 0.2 

Other Miscellaneous Manufacturing 1.1 Railroad Rolling Stock Manufacturing 0.1 

Other Electrical Equipment and Component Audio and Video Equipment Manufacturing 0.1 

Manufacturing 1.0 Manufacturing and Reproducing Magnetic and 

Electrical Equipment Manufacturing 1.0 Optical Media 0.1 

Sources: Brookings Institution, Bureau of Economic Analysis, and Moody’s Analytics. 

Note: Each subsector share of manufacturing output is calculated as a share of total manufacturing output as of 2020. Traditional manufacturing subsectors constitute the remaining 

34.6 percent of total manufacturing output. Numbers do not total 100 due to rounding 

Despite overall output growth in the manufacturing industry, 

employment in both the traditional and advanced manufacturing 

subsectors steadily declined since 2000 (Chart 3). This means 

productivity and output in the advanced manufacturing subsectors 

have increased despite falling employment. From 2000 to 2020, 

output per worker in the advanced manufacturing subsectors more 

than doubled from $129,000 to $264,000 per year. Traditional 

manufacturing’s output per worker rose from $86,000 to 

$115,000 per year, a 34 percent gain. 

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Chart 3 

Traditional Manufacturing Employment Has Consistently Been Higher

Than Advanced, but Both Have Fallen Since 2000 

Millions 

12 Traditional Advanced 

10 

6 

8 

4 

2 

0 

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 

Sources: Bureau of Labor Statistics Current Employment Survey, Quarterly Census of Employment and Wages, and Moody’s Analytics. 

The transition from traditional to advanced manufacturing has been 

most pronounced in the computer and electronics industry. Three 

components of computer and electronic product manufacturing 

reported the highest increase in output and account for half of 

the total annual output increases in the advanced manufacturing 

subsectors: Navigational, Measuring, Electromedical, and Control 

Instruments; Semiconductor and Other Electronic Components; 

and Communications Equipment Manufacturing.5 These subsectors 

accounted for $318 billion in output and employed 872,000 U.S. 

workers in 2020. The computer and electronics industry is home to 

global market leaders such as Apple, Google, Microsoft, and Dell, 

companies that have captured significant domestic and international 

market share. In addition, this segment of the manufacturing 

industry employs a higher percentage of engineers than any other 

manufacturing industry and has a continuous need for innovation and 

product development.6 

Although automation and offshoring have profoundly changed 

the manufacturing industry in recent decades, manufacturing has 

remained an important part of local economies even as the share 

of manufacturing employment in these economies has declined. 

As technology has improved, automation with machine labor has 

replaced many types of tasks that used to be performed by hand, 

removing workers from production and assembly lines and decreasing 

employment, but not productivity. Trade liberalization and the increase 

of offshoring, where a firm relocates part or all of its production to 

another country where costs are lower, have had an undeniable effect 

on the location of firms and the number of employees they hire in the 

5 The Navigational, Measuring, Electromedical, and Control Instruments subsector is NAICS code 3345, the Semiconductor and Other Electronic Components subsector is NAICS 

code 3344, and the Communications Equipment Manufacturing subsector is NAICS code 3342. 

6 Statista Industry Report, “Manufacturing: Computers & Electronics (NAICS 334),” December 2021. 

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United States. Although these trends in manufacturing in the United 

States have been the subject of much study, the complicated nature of 

multiple changes over decades makes it challenging to cleanly measure 

the effects on employment and local economies. 

The costs of automation and offshoring are often localized in specific 

geographic areas while the benefits of these changes may tend to 

accrue to the broader economy. Automating or relocating a factory may 

lower the cost of production or increase productivity, but can mean 

large job losses or a severe hit to local economies. Because of this, 

automation and offshoring have often been viewed as headwinds to 

the economic growth prospects of manufacturing areas. Chart 4 shows 

the share of manufacturing to total employment, which has steadily 

declined from 2000 to 2020. Chart 4 also shows that total production 

has increased. As manufacturing industry growth transitions between 

subsectors, some companies and geographic areas lose jobs as they 

transition away from specific products, while other companies gain 

new jobs and other areas gain firms. 

Chart 4 

Manufacturing Employment Has Fallen Since 2000 as Output Has Risen

Through Productivity Increases 

Manufacturing Output Manufacturing Employment 

Billions 

6,000 Manufacturing Output Manufacturing Employment Millions 20 

18 

5,000 16 

14 4,000 

12 

3,000 10 

8 

2,000 6 

4 1,000 

2 

0 0 

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 

Sources: Bureau of Labor Statistics Current Employment Survey and Bureau of Economic Analysis GDP by Industry. 

The states in which manufacturing accounts for the largest share 

of total state product host diverse manufacturing activities, but all 

states rely on the manufacturing industry’s contributions to state 

GDP and employment. Manufacturing is an important part of the 

economic production of many states, but some states with the highest 

total dollar volume of manufacturing output—like California and 

Texas—have such large and diversified economies that manufacturing 

does not play a pivotal role in many local communities. Focusing on 

the share of manufacturing output relative to total state product to 

highlight areas where manufacturing has the greatest impact on 

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local economies is therefore a useful way to identify states where 

manufacturing activity is of relatively greater importance to local 

economies and community banks. The map below shows five states 

in which manufacturing accounts for the highest share of state GDP: 

Indiana, Kentucky, Louisiana, Michigan, and Wisconsin. Another way 

to measure the importance of manufacturing to local communities is 

the employment associated with the industry. The map also shows five 

states with the highest share of manufacturing jobs relative to total 

employment: Indiana, Iowa, Kentucky, Michigan, and Wisconsin. Four 

states—Indiana, Kentucky, Michigan, and Wisconsin—are in the top 

five for both the manufacturing share of state GDP and the share of 

manufacturing employment to total state employment. 

Manufacturing Has Highest Share of GDP in Indiana, Kentucky, Louisiana,

Michigan, and Wisconsin 

Source: Bureau of Economic Analyisis (Haver Analytics). 

Note: Data as of 2020. 

Manufacturing Concentration and Employment 

Top 5 in Both Manufacturing Employment Share and Manufacturing Concentration 

Top 5 in Manufacturing Employment Share 

Top 5 in Manufacturing Concentration Share 

Not Top 5 in Manufacturing Concentration or

Employment 

The states highlighted in the map host a diverse range of 

manufacturing activities, with a few subsectors being particularly 

important. For example, the manufacturing subsector with the secondlargest number of workers nationwide is transportation equipment, 

a broad subsector that includes autos but also larger equipment, such 

as airplanes, ships, and trains. In three of the top five states (Indiana, 

Kentucky, and Michigan) transportation equipment ranks as the top 

manufacturing employer. Fabricated metal products, machinery, and 

food manufacturing contribute greatly to manufacturing employment. 

Chemical manufacturing is the top employer in Louisiana’s 

manufacturing industry but is not important for the other four highconcentration states. 

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Some states other than those with the highest concentration of 

manufacturing overall have grown significantly in manufacturing 

in recent years. The five states that reported the largest shifts from 

traditional to advanced manufacturing between 2000 and 2020 are 

Nevada, Oregon, Mississippi, North Carolina, and Maine. In 2020, 

these five states generated $84.2 billion in output, an increase of 

84 percent from the annual amount produced in 2000. During the 

same period, advanced manufacturing employment in these five 

states fell by more than 22 percent to a little more than 353,000 in 

2020, largely due to automation replacing workers. However, advanced 

manufacturing productivity in these states more than doubled from 

$100,000 to $238,000 per worker. These states are home to many large 

manufacturing firms, including industry leaders in technology (Tesla 

Gigafactory, Intel, and IBM), automotive (Nissan and Toyota), and 

shipbuilding (Ingalls Shipbuilding and Bath Iron Works). Although 

certain parts of the country are thought of as traditional manufacturing 

areas, new areas are emerging with the shift to advanced manufacturing. 

Other states reported output growth in traditional manufacturing 

subsectors. The five states reporting the largest increases in output from 

traditional manufacturing subsectors were New Mexico, Idaho, Kansas, 

Delaware, and Vermont. The increases were predominantly influenced 

by manufacturing of dairy products, beverages, and the slaughter of 

animals for meat products. Growth in the manufacturing industry, 

whether in advanced or traditional subsectors, can increase demand for 

financial services from community banks in those areas. 

Despite structural changes in the manufacturing industry, community 

banks have continued to support manufacturing activities through 

lending in their local economies. Community banks headquartered in 

the five states with the highest manufacturing output concentrations 

as highlighted in the map (Indiana, Kentucky, Louisiana, Michigan, 

and Wisconsin) stand out from community banks headquartered 

in other states with their substantially higher concentration of 

various types of commercial loans. The next section describes some 

of the general characteristics of community banks headquartered 

in manufacturing-concentrated states and the performance of their 

commercial loans relative to other community banks in recent years. 

These comparisons do not necessarily indicate that commercial 

lending is the sole factor that explains the differences between these 

types of community banks, nor do they speak to the degree of their 

support to the manufacturing industry specifically, but they illustrate 

general patterns that may be used as a basis for further research. 

Community banks in manufacturing-concentrated areas represent 

a small but stable share of community banks. As of fourth quarter 

2021, there were 552 community banks headquartered in the top-five 

manufacturing-concentrated states. These banks account for about 

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QUARTERLY 2022 VOLUME 16, NUMBER 3 

12 percent of all community banks, a share that has been fairly stable 

since 2000. These community banks are also spread throughout 

metropolitan, micropolitan, and rural areas. Of the 552 community 

banks headquartered in manufacturing-concentrated states, 

roughly 47 percent are in metropolitan areas, about 25 percent are 

in micropolitan areas, and nearly 29 percent are in rural areas.7 This 

dispersion across geographies means a community bank is likely to be 

accessible to a manufacturing firm regardless of whether the firm is in 

an urban or rural part of the state. Community banks headquartered 

in manufacturing-concentrated states are slightly smaller than 

community banks in other areas, with mean assets per institution of 

$579 million, compared with $635 million at other community banks, 

as of fourth quarter 2021. 

Community banks in manufacturing-concentrated states support their 

local economies through a higher share of commercial loans relative 

to community banks in other states. Community banks headquartered 

in manufacturing-concentrated states have less in terms of average 

assets per institution. As a group these community banks have a 

larger percentage of their assets in commercial loans supporting the 

local economy. Although loan-level detail is not available in bank 

Consolidated Reports of Condition and Income (Call Reports) and other 

FDIC data to examine loans taken out directly by manufacturing firms, 

several trends support the view that community banks headquartered 

in manufacturing-concentrated states are supporting manufacturing 

through access to credit and other financial services to businesses 

more broadly. Much of this support to manufacturing firms and local 

business conditions more generally comes through several categories of 

commercial loans reported on the Call Report. One important category 

is commercial and industrial (C&I) loans. These include loans for 

commercial, industrial, or professional purposes that are not secured 

by real estate. C&I loans capture direct lending to companies both for 

working capital and for longer-term upgrades and major equipment 

purchases, and include both manufacturing firms and other local 

businesses. A broader category of commercial loans is commercial real 

estate (CRE) loans, which include several categories secured by real 

estate. While not all of the loans within CRE are directly related to local 

manufacturing conditions, for example loans for multifamily housing, 

other categories such as loans for industrial or warehouse properties 

are likely to be more directly related to manufacturing. A third category 

of related commercial loans is construction and development (C&D) 

loans, which are loans secured by real estate to construct, add to, 

or alter structures for industrial, commercial, residential, or farm 

buildings. Like CRE loans, many of these commercial loans are not 

specifically focused on manufacturing firms but are an important 

part of credit for daily operation and expansion of the manufacturing 

7 Metropolitan and micropolitan are defined by the U.S. Census Bureau; rural areas are all other counties. Due to rounding, percentages may not sum to 100. 

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QUARTERLY 2022 VOLUME 16, NUMBER 3 

industry in the local area. All of these commercial loans are evidence of 

community banks supporting local economic conditions where they are 

headquartered. 

One portion of these commercial loans community banks 

headquartered in manufacturing-concentrated areas lend to firms is 

through their C&I loans. Chart 5 shows the share of total assets that 

are C&I loans for community banks headquartered in manufacturingconcentrated states compared with all other community banks. 

The share of C&I loans at banks headquartered in manufacturingconcentrated states has fallen since 2000, but it has consistently 

been much higher than for other community banks, frequently twice 

the share. Chart 5 also shows the spike in C&I lending in 2020 due to 

Paycheck Protection Program (PPP) loans administered at community 

banks headquartered in manufacturing-concentrated states.8 

Chart 5 

Community Banks in Manufacturing-Concentrated States Consistently

Have a Higher Share of Commercial and Industrial Loans 

Share of C&I Loans to Total Assets Community Banks in Manufacturing-Concentrated States 

16 Community Banks in All Other States 

14 

12 

10 

8 

6 

4 

2 

0 

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 

Source: FDIC Reports of Condition and Income. 

Note: Manufacturing-concentrated states are Indiana, Kentucky, Louisiana, Michigan, and Wisconsin. Commercial & Industrial 

loans inclusive of Paycheck Protection Program loans. 

This trend of community banks headquartered in manufacturingconcentrated states having a higher share of commercial loans than 

other community banks can be seen more broadly in CRE loans. Chart 6 

shows the share of CRE loans to total assets for both community banks 

headquartered in manufacturing-concentrated states and all other 

community banks. Similar to C&I loans, the share of CRE loans at 

banks headquartered in manufacturing-concentrated states is much 

higher when compared with other community banks (Chart 6). 

8 For more on the effect of the Paycheck Protection Program on bank balance sheets, see Margaret Hanrahan and Angela Hinton, “The Importance of Community Banks in 

Paycheck Protection Program Lending,” FDIC Quarterly 14, no. 4 (2020): 31–36, https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/2020-vol14-4/fdicv14n4-3q2020.pdf. 

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The volume of commercial lending by community banks headquartered 

in manufacturing-concentrated states can also be seen in trends in 

C&D lending. Chart 7 shows the share of C&D lending to total assets 

at community banks headquartered in manufacturing-concentrated 

states and compared with other community banks. There was a 

large increase in C&D loans in the years preceding the 2008 financial 

crisis that were reduced in its aftermath at community banks 

headquartered in manufacturing-concentrated states. Since 2012 the 

share of C&D loans has been fairly steady for both groups but higher in 

manufacturing-concentrated states. 

Chart 6 

Community Banks in Manufacturing-Concentrated States Consistently

Have a Higher Share of CRE Loans to Total Assets 

Share of CRE Loans to Total Assets Community Banks in Manufacturing-Concentrated States Percent Community Banks in All Other States 45 

40 

25 

30 

35 

20 

15 

10 

5 

0 

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 

Source: FDIC Reports of Condition and Income. 

Note: Manufacturing-concentrated states are Indiana, Kentucky, Louisiana, Michigan, and Wisconsin. CRE is commercial real estate. 

Chart 7 

Community Banks in Manufacturing-Concentrated States Have a Higher

Share of Construction and Development Loans to Total Assets 

Share of Construction and Development Loans to Total Assets 

Percent Community Banks in Manufacturing-Concentrated States 

16 Community Banks in All Other States 

14 

0 

2 

4 

6 

8 

10 

12 

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 

Source: FDIC Reports of Condition and Income. 

Note: Manufacturing-concentrated states are Indiana, Kentucky, Louisiana, Michigan, and Wisconsin. 

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QUARTERLY 2022 VOLUME 16, NUMBER 3 

The net interest margin (NIM) of community banks in manufacturingconcentrated states has on average exceeded that of other community 

banks. Chart 8 shows NIM for community banks headquartered in 

manufacturing-concentrated states and for all other community 

banks. NIM was higher for community banks headquartered in 

manufacturing-concentrated states for every year from 2000 to 2020 

except 2008. Another noteworthy trend reflected in Chart 8 is the 

secular decline in NIM affecting both groups of community banks, 

with NIM falling roughly a percentage point in the two decades 

since 2000.9 Higher NIM at community banks in manufacturingconcentrated states is likely related to the higher share of commercial 

loans to assets among those institutions, shown in Charts 5, 6, and 7. 

As discussed below, greater concentrations of lending can magnify the 

negative effects of economic downturns on bank profitability. 

Chart 8 

Community Banks in Manufacturing-Concentrated States Have

Consistently Higher Net Interest Margins Than Those in Other States 

Net Interest Margin Community Banks in Manufacturing-Concentrated States Percent 

5 Community Banks in All Other States 

3 

4 

2 

1 

0 

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 

Source: FDIC Reports of Condition and Income. 

Note: Manufacturing-concentrated states are Indiana, Kentucky, Louisiana, Michigan, and Wisconsin. 

Trends in return on assets (ROA) illustrate opportunities and risks to 

banks in manufacturing-concentrated states. Chart 9 shows the pretax 

ROA for both community banks in manufacturing-concentrated states 

and all other community banks since 2000. Before the 2007–2009 

recession, the pretax ROA of community banks headquartered in 

manufacturing-concentrated areas was consistently higher than for 

other community banks. The higher ROA of these banks before the 

crisis was consistent with their higher concentrations of commercial 

loans shown in Charts 5, 6, and 7, and with the pre-crisis growth of 

their CRE and C&D portfolios shown in Charts 6 and 7. 

9 For more discussion of NIM trends, see Angela Hinton and Chester Polson, “The Historic Relationship Between Bank Net Interest Margins and Short-Term Interest Rates,” 

FDIC Quarterly 15 no. 2 (2021): 31–41, https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/2021-vol15-2/fdic-v15n2-1q2021.pdf. 

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Chart 9 

Pretax ROA Took Longer to Recover A
er the Financial Crisis at

Community Banks in Manufacturing-Concentrated States 

Pretax ROA Community Banks in Manufacturing-Concentrated States Percent Community Banks in All Other States 

-1 

0 

1 

-2 

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 

Source: FDIC Reports of Condition and Income. 

Note: Manufacturing-concentrated states are Indiana, Kentucky, Louisiana, Michigan, and Wisconsin. Pretax ROA is the pretax 

net income as a percentage of assets. 

The manufacturing industry is sensitive to business cycles and 

recessions, which has direct implications on community banks and 

has weighed on their profitability through both direct credit exposure 

to manufacturing firms and indirectly through the manufacturing 

industry’s impact on the local economy. In the 2008 recession, 

pretax ROA at community banks headquartered in manufacturingconcentrated areas fell further and took longer to recover, staying 

negative until 2010, than ROA at community banks elsewhere in the 

country. The manufacturing industry declined severely during that 

period, with 2 million jobs lost nationwide. Community banks in the 

five manufacturing-concentrated states had higher commercial loan 

concentrations than other community banks, and the effects of the 

recession on their profitability were worse. More generally, annual 

economic growth rates in many of the manufacturing-concentrated 

states lagged the United States. From 2000 to 2020, the five 

manufacturing-concentrated states identified above often had annual 

economic growth rates lower than U.S. GDP growth. In both the 2001 

and 2008 recessions, the top five manufacturing-concentrated states 

experienced much steeper economic contractions than the United 

States overall. 

In more recent years, there has been little difference between the 

pretax ROA at community banks headquartered in manufacturingconcentrated areas and other community banks. As described in the 

next section, the adverse effects on manufacturing of the pandemic 

and accompanying recession have not been as long-lasting as those of 

previous recessions. 

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QUARTERLY 2022 VOLUME 16, NUMBER 3 

In contrast with previous recessions, the manufacturing sector 

has recovered losses from the recession in 2020 relatively quickly 

and continued to grow as the U.S. economy reopened and producers 

responded to pent-up demand. The onset of the COVID-19 pandemic in 

March 2020 and the shuttering of the economy were swift, severe, and 

broad-based. Manufacturing entered 2020 already facing headwinds 

from rising trade tensions, low energy prices, and Boeing stopping 

production of the 787 Max 8 jet. Industrial production began to 

weaken in 2018 due to these headwinds and contracted sharply at the 

onset of the pandemic. Unlike recent recessions in which industrial 

production has been slower to recover, manufacturing rebounded 

quickly despite ongoing pandemic conditions. In a typical recession, 

spending on goods, especially durable goods, declines as consumers 

forego expensive purchases but continue using routine services. 

However, the widespread closures of businesses, stay-at-home 

orders, and the immediate transition to telework for many industries 

decreased or eliminated demand for services while increasing demand 

for goods as people upgraded living quarters and home offices. Several 

rounds of emergency government assistance to households and 

enhanced unemployment insurance benefits also supported demand 

for goods, keeping personal income much higher and preserving 

balance sheets more than in typical recessions. Because of these 

factors, sales of both durable and nondurable goods recovered much 

faster than in previous recessions (Chart 10). Strong demand and 

relatively healthy consumer balance sheets for a recession resulted 

in a quick and broad-based rebound in sales of both durable and 

nondurable manufactured goods.10 

Chart 10 

Sales Rebounded Quickly for Durable and Nondurable Manufacturing 

Quarterly Sales 

$ Billions Nondurable Manufacturing Durable Manufacturing 

120,000 

100,000 

80,000 

60,000 

40,000 

20,000 

0 

Mar-00 Mar-03 Mar-06 Mar-09 Mar-12 Mar-15 Mar-18 Mar-21 

Source: Census Bureau Quarterly Financial Report for Manufacturing, Mining, and Trade Corporations (Haver Analytics). 

Note: Sales are seasonally adjusted. Shaded areas indicate recession. 

10A related rebound in consumer lending occurred during the pandemic. For more information see Kathryn Fritzdixon, “Consumer Lending Through the Pandemic and the 

Recovery,” FDIC Quarterly 16 no. 1 (2022), 31–40, https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/2022-vol16-1/article1.pdf. 

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QUARTERLY 2022 VOLUME 16, NUMBER 3 

Employment in manufacturing also recovered more quickly than in 

previous recessions, though not as fast as other pandemic-affected 

industries. In the 22 months between May 2020 and March 2022, 

the manufacturing industry added just more than a million jobs, 

roughly 91 percent of the 1.4 million jobs lost in March and April 2020. 

In contrast, manufacturing continued to lose jobs in the 22 months 

after the end of the 2001 recession and the 22 months after the end 

of the 2008 recession.11 Chart 11 shows the strong employment gains 

in manufacturing from 2020 to 2022 relative to the two previous 

recessions. The rebound in employment was partly due to firms 

responding to the immediate demand for goods and bringing 

production workers back quickly. Although the pace of the jobs 

recovery in manufacturing is encouraging, it is slower than in many 

other industries. Chart 12 shows the percentage of jobs recovered for 

the economy as a whole and for key industries, with manufacturing 

showing a slower recovery than the economy in general. Like 

many other sectors of the economy, manufacturing has had worker 

shortages. Job openings in manufacturing are much more abundant 

now than before the pandemic. This labor shortage weighs on firms’ 

ability to increase production and power the recovery. 

Chart 11 

Manufacturing Has Regained Lost Jobs Much Faster Aer This Recession

Than Previously 

2001 Recession 

2008 Recession 

2020 Recession 

-1,491 

-13 

1,234 

-2,000 -1,500 -1,000 -500 0 500 1,000 1,500 

Manufacturing Job Change 22 Months From End of Recession

Thousands 

Source: Bureau of Labor Statistics Monthly Establishment Survey (Haver Analytics). 

11 The manufacturing industry underwent structural change independent of the 2001 recession due to automation and offshoring and lost more than 2.6 million jobs from early 

2000 to early 2004. 

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QUARTERLY 2022 VOLUME 16, NUMBER 3 

Chart 12 

Manufacturing Job Gains Lag the Recovery in Other Industries 

Transportation 220.2 

Professional Services 131.4 

Financial Activities 114.6 

Retail Trade 112.4 

Information 110.0 

Construction 100.4 

Manufacturing 90.6 

Education & Health 83.9 

Leisure & Hospitality 82.0 

Wholesale Trade 74.3 

Other+ 55.8 

0 50 100 150 200 250 

Share of Jobs Lost in March and April 2020 That Have Been Recovered as of March 2022 

Percent 

Source: Bureau of Labor Statistics Monthly Establishment Survey (Haver Analytics). 

Note: Other+ category captures Government, Mining, Utilities, and Other Services. 

The transition of the manufacturing industry from the pandemic 

recession poses several risks for banks. The interconnected nature 

of global supply chains has created problems in the production and 

distribution of goods, which weighed on production in 2021 and 

will take time to normalize. Lockdown orders and social distancing 

measures slowed the pace of production as factories had to close or 

idle production. Lingering supply chain issues and order backlogs 

may continue for the near term and could create a liquidity risk for 

firms, especially those that purchase expensive intermediate goods 

on credit or have complicated production processes that take time to 

create a finished product. Unexpected delays in the production process 

could increase the risk of nonpayment or default for bank loans. 

Producing at reduced capacity for extended periods due to a shortage 

of workers or inputs may reduce income and could affect the ability 

to meet financial obligations. Labor shortages and supply constraints 

could weigh on further gains and increase the underlying risk to 

banks. The remaining shortage in manufacturing workers might be 

harder to resolve than for other industries, as manufacturing is less 

accommodating for working from home, making it more difficult to 

recruit new workers. 

Even as the recovery in manufacturing is well under way, pandemicrelated credit risks to banks from the manufacturing industry could 

take time to surface fully or to resolve. The manufacturing industry 

remains susceptible to the risks of plant closure due to the evolving 

nature of the pandemic, or relocation of firms due to global market 

pressures as production and demand normalize. Even as these shortterm challenges resolve, banks face longer-term risks stemming 

from continued structural changes in the manufacturing industry as 

it transitions to advanced manufacturing, potentially affecting the 

concentration of firms among states. 

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QUARTERLY 2022 VOLUME 16, NUMBER 3 

Manufacturing firms received substantial support from the PPP 

and defaults may increase as program support runs out. While the 

vast majority of PPP loans have been forgiven, program wind-down 

could reveal weakened firms that have other outstanding loans 

that could expose banks to losses if the firms remain unprofitable. 

Finally, the demand boom for manufacturers presents risks to banks 

if banks without experience expand lending to manufacturing late 

in the business cycle. As demand normalizes from recent high levels, 

sales could decline and expose lenders to credit risk if borrowers are 

overextended. 

CONCLUSION Manufacturing is a key economic driver and employer in many states, 

and a rapid transition from traditional to advanced manufacturing 

is occurring in a number of states. The banking industry continues 

to support lending in manufacturing-concentrated states even as 

the manufacturing industry has experienced significant structural 

changes in recent decades, and the community banks are active 

commercial lenders in these areas. Manufacturing can be highly 

cyclical and continues to evolve, and these developments will 

remain important to community banks. The manufacturing industry 

demonstrated its resilience during the pandemic-induced recession in 

2020, with output and employment initially recovering more quickly 

than many other sectors. Overall, the rapid rebound in manufacturing 

compared with past recessions and the ongoing transition to highervalue-added advanced manufacturing subsectors generally support a 

positive outlook in growth for those community banks that serve them. 

Authors: 

Chester Polson 

Senior Financial Economist 

Division of Insurance and Research 

Stephen Kiser 

Regional Economist 

Division of Insurance and Research 

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