Michigan Manufacturing Shores Up Nation's Economy

Posted on May 4, 2011

Tuesday’s reports of another month of increased auto sales is good news for Detroit’s Big Three but also for the U.S. economy. The rebound in auto sales from rock-bottom just two years ago is big factor in the manufacturing rebound that is driving the nation’s economic recovery.

According to federal data, the economy grew at an annual rate of 1.8 percent in the first three months of 2011. But at 9 percent, manufacturing grew four times faster.

Durable goods manufacturing of big ticket items such as washers, dryers and cars grew even more: at a rate of 16 percent. Within the motor vehicles and parts category, manufacturing growth was even bigger: more than 40 percent.

“We’ve had this huge rebound in the manufacturing sector in both output and hiring,” said Mark Perry, professor of economics and finance in the School of Management at the University of Michigan-Flint.

“Michigan’s manufacturing employment is about 4 percent of the total jobs in manufacturing. But about 15 percent of the manufacturing jobs created have been created in Michigan.”

Manufacturing — the quaint, old-fashioned business of making real things that real people and businesses use — fell out of favor during the economic boom in the early years of this millennium. Investors were more interested in concocting exotic financial instruments, handing out consulting advice or entertaining the masses with the antics of the real housewives of conspicuous consumption.

But at this point in the economic recovery, it’s the real business of America that’s front and center. While the rising price of gas — which hit a record statewide average of $4.22 Tuesday — could threaten vehicle sales, right now businesses and consumers who cut spending to the bone during the recession are showing up on dealers’ lots.

Families who put off buying new cars have been coming back as layoffs and firings have fallen off, and business owners are adding trucks and delivery vehicles to replace aging fleets. And while the economy isn’t growing fast enough, it would be crawling without Michigan and the other Rust Belt states shining up economic activity.

Of the 1.3 million jobs the U.S. added during the four quarters ending in March, manufacturing accounted for nearly 12 percent of the hiring — with Michigan adding nearly one-fifth of all those jobs.

Mich. leads the pack

Among manufacturing states, Michigan is well ahead in job creation — nearly 30,000 jobs in that period. That’s 40 percent more than the second-biggest gaining state — Wisconsin — and five times the jobs added in California.

Compared with June 2009, when the recession officially ended, Perry noted, the number of manufacturing positions in the United States has declined, but Michigan has added 48,500 manufacturing jobs.

Driving much of that is the rebound in auto sales, especially in Michigan-made pickups. Jenny Lin, senior U.S. economist for Ford Motor Co., says business investment is a big part of that, noting that capital spending increased 11.6 percent in the first quarter over the fourth quarter.

“That shows businesses are investing,” Lin said. “They’re finding they can’t live with an old fleet of vehicles anymore, so business owners are renewing their fleets. That’s a point of support for Ford sales going forward.”

And for Michigan, as businesses, contractors and farmers pick up more pickups.

Ford’s F-150 line is made in Dearborn’s Rouge River plant, while Chrysler Group LLC makes the Ram 1500 and Dakota pickups in Warren. General Motors Co. assembles the heavy-duty versions of the Chevy Silverado and GMC Sierra in Flint, models selling so well now despite an increase in gas prices to nearly $4 a gallon nationwide that GM just added a third shift.

While it would take many, many extra shifts of auto workers to replace the 503,000 jobs lost in Michigan since January 2006, the manufacturing rebound underscores the heavily cyclical nature of the state’s economy. With its dependence on automakers, Michigan’s economy falls faster and harder when bad times send vehicle sales plummeting.

But the state also bounces back faster and higher than others after an economic downturn.

After four years of posting the worst unemployment rate in the nation — topping out at a whopping 14.5percent in December 2009 — Michigan now ranks fifth at 10.3 percent, behind Nevada, California, Florida and Rhode Island, and barely above the 10.2percent rates of Kentucky and Mississippi. Michigan’s unemployment rate has fallen at twice the rate of the U.S. rate, now at 8.8 percent.

Improving faster

The double-digit unemployment in eight other states, along with increasing gas prices and rising costs for food and commodities, still signal that the weak recovery could slow more or even stall out.

Michigan still has a dwindling population, far too many people unemployed or underemployed, and a state budget awash in red ink.

But at least one sector of the state and national economy is firing on all cylinders for now.

“For about the last six months, Michigan’s unemployment rate has been way below California and a few others states,” Perry said. “Michigan has improved faster because of the cyclical nature of our economy. There may be nothing to bring California and Nevada back, but at least Michigan has the auto sector.”

By Brian J. O’Conner, The Detroit News