April 12, 2002
Probing the Complexities of Indiana Manufacturing
The recession of 2001 has been many things to many people. For manufacturers, the travel industry, and state governments, it's been a crisis. For health care and banking, it's been a non-event. But for economists, it has been a golden opportunity to explore and discover. For while economic downturns are painful for all of us, they also teach us something about how the pieces of the economy fit together.
In the manufacturing sector, the complexity of the relationships that ultimately determine our economic performance is surprising. Forty years ago it was said that what was good for General Motors was good for the country. Certainly that statement still rings true in communities around the state of Indiana where the world’s largest automaker has a significant presence. But the sluggish performance of Indiana manufacturing, in a year that saw the second-highest production total in motor vehicle industry history, has taught us that we've got to do a lot more than simply "move the metal" to prosper as an economy.
What else have we learned so far? If we could draw up a list, it might go something like this.
Let's start with the most obvious lessons first. We've seen demonstrated yet again that manufacturing remains very important for the entire Midwest, including Indiana. The recession has been tough on manufacturing, and the larger employment declines experienced in Indiana and its neighboring states bear that out. Since the official start of the recession in April 2001, Hoosier payrolls are down 1.5 percent, compared to a 1 percent decline in national employment over the same period.
But since the economy began to stumble in the Midwest earlier than elsewhere, that understates the point. Indiana's payroll employment peaked at over 3 million in mid-2000, with the approximately 100,000 job decline that's occurred since that time representing a 3 percent contraction.
Yet throughout that downturn there have been few signs, if any, that Midwest manufacturing has lost its competitive edge. Outside of the steel industry, the manufacturing employment decline has actually been milder in Indiana than for the nation as a whole. And as painful as the 5.5 percent contraction in manufacturing payrolls has been over the last twelve months, it has been smaller than the 7.1 percent decline in factory employment nationwide.
The recession of 2001 has taught us the important relationship between business spending nationally and the Indiana manufacturing economy. Who would have believed before last year that in spite of reasonably strong motor vehicle sales and a robust housing market, manufacturers would be in such dire straits? Yet with capital spending collapsed in the wake of the technology and stock market bust, the order books for countless state-based companies have gone bone dry. For many of them, it remains that way today.
2001 was also a year when the market share of GM, Ford and Daimler-Chrysler dipped below 60 percent for the first time. Indeed, with every spade that sinks into the ground to begin construction of foreign-owned vehicle assembly plants in our own state and to our south, the landscape of the auto industry changes to make the old Big Three less relevant.
We're still learning what that means, but at least for the state as a whole, the benefits so far seem to outweigh the costs. As the new year unfolds and the much anticipated recovery gets underway, we can only hope that the lessons we have yet to learn will be happy ones.
About the Author
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