Fed report: Manufacturing plods along in the Midwest

Crimped by the tattered automobile industry, the manufacturing sector in the Midwest continues to struggle. The Federal Reserve Bank’s Chicago Fed Midwest Manufacturing Index (CFMMI) decreased 0.8 percent in May to a seasonally adjusted level of 104.8 (2002=100). Revised data show the index decreased 1.8 percent in April, to 105.7.

The Federal Reserve’s industrial production index for manufacturing (IPMFG) was unchanged in May. Regional output in May was 2.8 percent lower than a year earlier, below the 0.1 decrease in national output.

All four of the regional industry sectors decreased in May: auto sector production fell 1.7 percent; machinery sector output moved down 1.0 percent; resource sector output declined 0.8 percent; and steel sector output edged down 0.1 percent. The Midwest’s auto sector production fell 1.7 percent in May after dropping 5.2 percent in April. The Midwest’s automotive output was down 14.8 percent in May relative to its year-ago value, while the nation’s auto output was down 5.8 percent.

The pain in the automotive sector is being acutely felt in Wisconsin, where Delphi Corp. closed its plants in Oak Creek, eliminating 1,000 jobs, and General Motors Corp. recently announced plans to close its production plant in Janesville, eliminating 2,400 jobs.

Bill Testa, vice president of regional programs in the research department at the Federal Reserve Bank of Chicago, says states in the Midwest are grappling with the realities confronting their manufacturers.

"In the face of such stark declines, the question arises as to whether the region must look beyond manufacturing and toward new industries. As the U.S. economy evolves toward advanced services, should the Midwest be following suit at an accelerated pace? And if so, how should the region go about it? For example, should the region’s policy focus on improving the quality of life features to attract highly skilled workers for business services and related industries? Or should the region cultivate new technology and entrepreneurial behavior in an effort to grow new industries?" Testa recently wrote. "Arguably, policymakers in the region should pursue all such avenues toward redevelopment and reinvention that are within the bounds of reason and with careful cost–benefit consideration. But there are also reasons to believe that traditional manufacturing can continue to play an important role in the Midwest economy. Significant opportunities remain for manufacturing enterprises that are both extant and emerging here."

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