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June 18, 2004

Industrial Economy on a Roll

If there’s one piece of news on the national economy that bodes well for the state ofIndiana , it is this:  the industrial economy is on a roll.  For domestic manufacturers, the pain of empty order books, declining profits, job cuts and brutal cost pressures lingered on much longer than in most other sectors of the economy.  And, as has happened in almost every downturn, some voiced the opinion that the end was in sight for American manufacturing.

The message from the May release of the Federal Reserve’s Index of Industrial Production is a resounding “not yet.”  Thanks to a robust turnaround in factory output in durable goods industries, the Fed’s manufacturing index notched its ninth consecutive uptick in May.  Not only is durable goods factory output up 9.4 percent from 2003 levels, the new data tell us that levels of production have rebounded beyond the pre-recession peak in output reached in the fall of 2000.

Even though strong consumer spending has played a role, it has been the mushrooming of business demand for equipment of all kinds that has helped the industrial economy finally get untracked.  The index for business equipment grew by 1.4 percent in May alone, led by a 2.8 percent surge for information processing equipment.  Machinery andfabricated metals manufacturers have also seen strong growth as businesses nationwide ramp up expansion plans.

That’s exactly the pattern of national growth that puts winds in the sails of the Indianaeconomy.  The down and up cycle of the manufacturing economy nationwide since 2000 fits Indiana’s recession experience like a glove, with good reason.  We are the most manufacturing-intensive state in the country, after all, with more than 34 cents paid out of every dollar of earnings going to manufacturing workers.

But the connection between Indiana ’s economic fortunes and the manufacturing sector has become more complex with the passing of time.  To begin with, the old adage tying the fate of Indiana to the automobile industry hasn’t held up very well recently.  In 2002, when job losses in our state were scraping bottom in the national rankings, the auto industry sold more than 16.8 million cars and trucks, its third best year ever.  The housing sector’s boom didn’t keep the state economy afloat either, despite the important presence of the furniture and household appliance industries here.

The collapse in business equipment spending in the aftermath of the technology boom of the late 1990’s proved to be more deciding factor in our economic fate, just as its rebound now is breathing new life.  That’s good, because the best days for the automobile and housing industries may be behind us for a while.

The motor vehicle industry was on wobbly legs even before gas prices surged ahead this spring.  The aggressive use of incentives, low interest rate loans and attractive lease deals over the last year and a half have pushed a lot of iron out of showrooms in recent years, sending used car prices down as consumers accelerated their replacement plans.  Now those bills are coming due as manufacturers find it harder to push new vehicles into a fleet that is dominated by recent vintage cars and trucks.  The production of motor vehicles has declined every month since the beginning of the year, according to the Fed’s output index.

For better or worse, if there’s one state where the manufacturing economy is big news, it isIndiana .  Let’s be thankful that the news these days is good.

Link to this commentary: https://commentaries.cberdata.org/315/industrial-economy-on-a-roll

Tags: manufacturing, economics


About the Author

Pat Barkey none@example.com

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.

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