It's easier to finding a parking place at most factories in the Midwest these days. That's because in the short span of six months, the U.S. economy has given formerly worker-starved factory managers an older, more familiar problem to worry about: empty order books. In the changing winds blowing through the national economy, the sector of the economy with its chin stuck out the farthest is manufacturing.

That was made dramatically evident in the Federal Reserve's December report on industrial activity released last week. According to the Fed's Index of Industrial Production for Manufacturing, output slumped by 1.1 percent in the year's final month, capping a miserable fourth quarter slide that saw factory output tumble at a 2.1 percent annual rate. The cutbacks and mothballing of facilities helped bring the factory utilization rate down to just 80.6 percent, its lowest level since 1993. 

There was weakness across the board for U.S. manufacturers, many of whom are caught in the crossfire between soft demand, galloping energy costs, and stiff competition from abroad working to keep prices in check. Both durable goods and nondurable goods production were sharply off at the end of last year, with particular weakness shown in primary metals, motor vehicles, and petroleum products. 

It's hard to put a positive spin on the report, especially for the steel and auto industries, each with a significant presence in Indiana. Low steel prices have already stressed some companies to the breaking point, with the devastating loss of LTV in northwest Indiana looming as a real possibility. But it is the slumping motor vehicle industry, whose problems come more from the demand side, that has the larger footprint in the Indiana economy. 

We learned about that during the brief strike at General Motors in the summer of 1998, when a shutdown at a critical parts facility in Flint, Michigan caused cascading stoppages at assembly facilities, other parts plants, and several tiers of suppliers in a short span of time. The story that is unfolding right now in Indiana and the Midwest is exactly the same, except that all name brands are now being affected. 

These changes will soon be reverberating through the state and regional economic statistics in the coming months. Unemployment rates, in particular, are likely to begin moving sharply upward in Indiana cities, especially those with high concentrations in autos and steel. 

Now that the downturn in manufacturing has arrived, the only questions are how long it will last, and whether or not it will be enough to bring the rest of the economy down with it. There is reason for optimism on both counts, but a rosy future is far from certain. Thanks in part to the national economy's increased diversification, there is still plenty of money in consumers' pockets to fuel a rebound in spending, should they regain the inclination to do so. And the Fed's new commitment to growth will help businesses and bankers climb out of their bomb shelters and start spending more on capital and equipment.