Rust Belt Renaissance: Reviving Economies Long Given Up for Dead

Rust BeltEven as the U.S. economy has been slow to boost employment, the number of jobs in the manufacturing sector has grown steadily amid the recovery. That's led some observers to suggest that a Rust Belt Renaissance has firmly taken root in the nation's heartland.

The region's most renowned industry, vehicle manufacturing, has helped lead the revival. Detroit's Big Three automakers -- General Motors, Ford Motor Co. and Chrysler Group -- have each added jobs and reopened plants in several Midwestern states, including those hardest hit by the recession: Ohio, Illinois and Michigan. GM, for example, announced last month that it's investing $2 billion in 17 plants, thereby retaining or creating 4,000 jobs in eight states.

It's not that economic conditions are that much better in the central bank's seventh district, which includes all or parts of five Midwestern states, rather it's that the pace of improvement has been quicker, according to William Testa, director of regional research at the Federal Reserve Bank of Chicago, one of 12 Federal Reserve districts spread across the country.

In a blog post last month, Testa noted that unemployment rates have fallen most rapidly in Michigan, followed by Illinois, and then Indiana and Wisconsin. Portions of those states, along with Iowa, comprise the central bank's seventh district. The trend in Ohio, which lies in the fourth district and recorded a 8.4 percent unemployment rate in April, mirrors that of Illinois with its 8.6 percent jobless rate, according to data compiled by Google.

Michigan and Illinois saw their unemployment rates drop by 2 to 3 percentage points in the 17 months ending in March, according to the Chicago Fed. Meanwhile, Indiana, Wisconsin and Ohio recorded 1 to 2 percentage-point drops in the jobless rate, during the same period, Testa says.

Midwest states' manufacturing job growth in part is due to the growing economies of China and India, says Arthur Wheaton, workplace and industry education specialist at Cornell University's ILR School.

As developing nations continue to expand, "it's no longer cheaper there, if you factor in all the costs," including logistics and fuel, Wheaton says.

Further affecting manufacturers' decisions to begin or renew manufacturing in the Midwest are recent disruptions to the supply chain caused by natural disasters, chiefly the March earthquake and tsunami in northeast Japan.

Those twin events have led to a number of plant shutdowns and employee furloughs caused by parts shortages. In recent decades, companies have turned to just-in-time delivery methods to reduce inventory expense. The downside to the cost savings is that a disruption in parts deliveries means production is either slowed or idled.

Business isn't the only driver helping to revive the Rust Belt. U.S. consumers, too, are demanding more homegrown goods. "People in the U.S. are starting to realize that when you're buying all your stuff from foreign countries all those [manufacturing] jobs are going to foreign countries," Wheaton says. "As times get tough, people start to make that connection a little closer."

One company benefiting from the trend of more U.S.-made goods is the All American Clothing Co. Founded in 2003, the western Ohio-based company's products, which include jeans, shorts and shirts, are all made in the U.S. using raw materials harvested in the U.S.

Speaking last week on cable news channel CNBC, company co-founder Lawson Nickol said selling pricier U.S.-made goods to consumers who have become even more price conscious due to the flat economy is a challenge. "It's an educational process, and it's going to be tough in the United States," Nickol said.

Foreign-produced goods might be cheaper in the store, but there are other factors to consider, he said. Products made in the U.S. contribute more money to local economies and the tax base of communities and states. "It also keeps jobs in the United States; that helps us to pay for [social security and health programs]," Nickol said.

Another factor propelling the Midwest's manufacturing resurgence is growth in exports, Testa says. Led by economic recovery, primarily in Asia and Latin America, trade among countries rose sharply last year.

"Over the seven quarters of the U.S. economic recovery since mid-2009, export growth has contributed an average 1.25 percentage points to annual output growth," he says.

That has led to increased exports of goods manufactured in the region, such as heavy machinery, and medical and transportation equipment, that are needed by developing countries as they build their own economies.

The resurgence in manufacturing across the Midwest also likely means that there will be more jobs -- a multiplier effect driven by related businesses that establish offices and factories nearby to support renewed plant production and employment.

With the labor market apparently slowing, many looking for employment view nearly any job as a good job, and that's helping to erase some of the stigma associated with factory work.

"Manufacturing is no longer a dirty word or a dirty job." Wheaton says. "People want a job -- they want some stability, and manufacturing can help bring that."

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