All posts by Thomas Walstrum

Michigan Automotive, More Than Production

By Thom Walstrum and Bill Testa

The dispersion of auto assembly line-type jobs from Michigan to the rest of the U.S. has been widely discussed. But it may be important to examine whether other jobs in the automotive value chain have also dispersed, particularly R&D and headquarters-administrative jobs. It is possible that a sizable part of automotive R&D and administration are spatially separable from production, with important implications for the economic health and growth prospects of Michigan.

To shed some light on this, we use microdata from the IPUMS CPS[1] to track trends in production, office, and R&D jobs in both Michigan and the rest of the U.S. We sort any individual who reports working in the auto industry into one of these three occupational categories. For example, we classify engineers and technicians as R&D and assembly line workers as production workers. (We further classify as “other” those occupations that could fall into multiple categories, such as security or janitor).

Figure 1 shows that total employment in the automotive industry has been relatively steady in Michigan, averaging 413,000 from 1970 to 2005. Since then, there has been a distinct decline; by 2012, Michigan’s auto employment was 262,000. In contrast, auto employment steadily increased in the rest of the U.S., rising from 588,000 in 1970 to a peak of 974,000 in 2007. The rest of the U.S. also saw heavy losses in the second half of the 2000s, with auto employment at 710,000 in 2012.

Trends in the R&D segment of the auto assembly are quite different. As figure 2 shows, R&D employment in Michigan grew steadily until the 2000s, from 28,000 in 1970 to a peak of 90,000 in 2001. Growth in R&D jobs in the rest of the U.S. generally kept pace, though with the exception of a couple years in the early 2000s, the majority of R&D jobs have resided in Michigan.

And so we see that R&D employment has made up an increasing share of overall auto employment in Michigan. In 1970, 6 percent of Michigan’s auto employment was found in R&D. By 2012, this share had climbed to 22 percent. This contrasts sharply with the rest of the U.S., where the proportion of auto employment in R&D grew from 1 percent in 1970 to 6 percent in 2012. Looking more broadly, 46 percent of Michigan’s employment is in either R&D or office occupations, compared with 24 percent in the rest of the U.S. At least by this measure, Michigan remains the nerve center and the creative engine of the U.S. auto industry, even as production jobs have dispersed.

This glimpse of the changed employment composition of Michigan’s auto assembly sector raises further questions. In particular, what is the outlook for Michigan’s R&D activities in light of the shifting geography of auto production activities? And what, if any, public policies might be influential to R&D’s continued success in the state?


[1] IPUMS CPS provides an occupation variable that is unified across changing occupational coding schemes from 1968 to present. The CPS survey combined Michigan and Wisconsin from 1968 to 1976. To allow the time series to extend back to 1968, we calculated by employment category the proportion of worker-years Wisconsin contributed to combined MI-WI totals from 1977 to present. We then used that proportion to scale down the pre-1977 MI-WI employment numbers to represent only Michigan and to scale up the ROUS numbers so to include Wisconsin. (Return to text)

Seventh District Update

by Thom Walstrum and Scott Brave


A summary of economic conditions in the Seventh District from the latest release of the Beige Book and from other indicators of regional business activity:

Overall conditions: The rate of growth in economic activity in the Seventh District slowed a bit in September. Contacts remained generally optimistic, although several expressed concern about the potential impact of the federal government shutdown.

Consumer spending: Consumer spending grew modestly in September, falling short of retailers’ expectations. Auto sales increased at a slower pace and back-to-school spending was less than last year. Retailers expected holiday season spending to be similar to last year.

Business Spending: Growth in business spending flattened out in September. Growth in capital spending slowed slightly and inventories were at comfortable levels for most retailers and manufacturers. The pace of hiring edged lower and retailers indicated that seasonal hiring plans were about the same as last year.

Construction and Real Estate: Construction and real estate activity continued to increase in September. Demand for residential construction grew moderately, as did activity in the residential real estate market. Nonresidential construction grew modestly and commercial real estate activity continued to expand.

Manufacturing: Growth in manufacturing production decreased slightly in September. The auto and aerospace industries were again a source of strength. Steel production was steady, demand for specialty metals, construction materials, and household appliances declinedslightly, and demand for heavy equipment remained soft.

Banking and finance: Credit conditions changed little on balance over the reporting period. Banking contacts noted competitive pressures for commercial and industrial loans, with narrowing spreads and easing standards. Consumer loan demand was steady, with a decrease in mortgage lending and an increase in auto lending.

Prices and Costs: Cost pressures changed little in September. Overall, commodity prices were down slightly. Retailers again noted a slight increase in wholesale prices. Wage pressures remained mild and non-wage labor costs increased.

Agriculture: Although the year’s drought affected the harvest, corn and soybean yields in parts of the District were higher than expected in September though rains slowed harvesting. Corn, soybean, hog, and fruit prices decreased, while milk and cattle prices increased.

The Midwest Economy Index (MEI) increased to +0.41 in August from +0.22 in July, and the relative MEI rose to +0.73 in August from +0.45 in July. August’s value for the relative MEI indicates that Midwest economic growth was higher than would typically be suggested by the growth rate of the national economy.

The Chicago Fed Midwest Manufacturing Index (CFMMI) increased 1.5% in August, to a seasonally adjusted level of 96.7 (2007 = 100). Revised data show the index was down 0.7% in July. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) moved up 0.7% in August. Regional output rose 4.0% in August from a year earlier, and national output increased 2.8%.

Seventh District Update, September 2013

by Thom Walstrum and Scott Brave


A summary of economic conditions in the Seventh District from the latest release of the Beige Book and from other indicators of regional business activity:

Overall conditions: The pace of economic activity in the Seventh District improved in July and August, and contacts generally expected growth to remain moderate for the rest of the year.

Consumer spending: Growth in consumer spending picked up a bit in July and August. Auto sales rose, continuing to outpace growth in non-auto retail sales. Non-auto retail sales increased modestly, with sales of luxury and housing-related items improving.

Business Spending: Growth in business spending also picked up some in July and August. Contacts reported making moderate investments in equipment and software and structures, but inventory investment decreased. Labor market conditions also softened a bit.

Construction and Real Estate: Construction and real estate activity increased further in July and August. Demand for residential construction grew steadily, as did activity in the residential real estate market. Nonresidential construction grew at a more modest pace and commercial real estate conditions continued to improve.

Manufacturing: Growth in manufacturing production increased in July and August. The auto industry continued to be a source of strength and steel production again grew at a moderate pace. Demand for heavy equipment remained soft, although demand for construction equipment continued to strengthen.

Banking and finance: Credit conditions tightened some over the reporting period. Banking contacts cited a modest reduction in overall business loan demand, but noted continued steady growth for commercial and industrial loans in the middle market. Consumer loan demand continued to increase, particularly for auto lending, and mortgage lending rose.

Prices and Costs: Cost pressures were moderate in July and August. Contacts noted an increase in some commodity prices. Retailers again reported mostly modest increases in wholesale prices and wage pressures were mild.

Agriculture: Abnormal dryness affected much of the District during the reporting period, lowering expectations for crop yields. However, conditions remain much better than a year ago. Corn, soybean, wheat, hay, milk, hog, and cattle prices all decreased.

The Midwest Economy Index (MEI) increased to +0.25 in July from –0.11 in June, and the relative MEI rose to +0.45 in July from –0.16 in June. July’s value for the relative MEI indicates that Midwest economic growth was somewhat higher than would typically be suggested by the growth rate of the national economy.

The Chicago Fed Midwest Manufacturing Index (CFMMI) decreased 0.1% in July, to a seasonally adjusted level of 95.8 (2007 = 100). Revised data show the index was up 0.4% in June. The Federal Reserve Board’s industrial production index for manufacturing (IPMFG) moved down 0.1% in July. Regional output rose 1.6% in July from a year earlier, and national output increased 1.5%.

Will Efforts to Fix Illinois Budget Hamper Economic Growth?

Bill Testa and Thom Walstrum

A famous quote by a notable economist, Herbert Stein, is that “If something cannot go on forever, it will stop.”

An independent “State Budget Crisis Task Force” recently concluded unambiguously that “The existing trajectory of (Illinois) state spending and taxation cannot be sustained.” This follows a growing recognition by many observers and analysts that state government (and many local governments) in Illinois have been running chronic deficits, financing public services each year for many years through added debt. Although the state’s primary funds (the General Funds) were often reported to operate in balance, total state liabilities typically exceeded revenues collected.[1]

As a consequence, Illinois state government finds itself today with hefty unfunded debt obligations—namely unfunded pension liabilities and unpaid bills for current services—amounting to over $100 billion. These debt obligations represent payment claims for government services that have already been delivered.[2] While the state government paid the wages and salaries of its teachers, professors, and state workers at the time that their services were provided, part of the employee compensation for these services was deferred to the future through the promise of retirement income. But, the state government did not put aside sufficient financial assets to pay the promised retirement income and other deferred benefits. Looking forward, no one expects the state’s likely economic growth path to lift tax revenue streams much above recent (tepid) norms.

And so, given anticipated expenditures for new and expanded programs, such as federally mandated health care expansion, expenditures for public services are likely to continue to outstrip available revenues. Agencies that rate the quality of debt for would-be investors have declared the state’s bonded debt to be of the lowest quality among all states. Thus, the state’s debt position can be expected to deteriorate further without significant intervention by the state government. Indeed, elected officials will need to act very soon to restore confidence.

To do so, the state is left with a only a couple options—cuts in spending (including cuts in promised pension payouts) and hikes in taxes and fees.[3] Curbs on the growth of spending are clearly in the cards. Even if the state devotes increasing revenues to paying down its accumulated debt—which it is now doing—it will likely also require sharp declines in public service provision. Already, for example, state aid to public education has flattened out over the past three years. Similarly, the state has trimmed its promised pension benefits for new state employees.[4]

The other possible course of action is for the state to increase tax revenues, so as to chip away at (and eventually eliminate) the debt accumulated for past public services, while covering normal and expected revenue demands of the years ahead. If we compare the overall average tax burden of Illinois with that of its neighboring states over the past 15 years, we find that Illinois actually kept its tax burdens lower than its neighbors’ from FY 1995 through 2010 by deferring its commitments for employee compensation. However, now that debts must be repaid, tax burdens will possibly rise above national and regional norms. Accordingly, a potential downside is a dampening of growth and development as rising taxes, without any accompanying rise in services, diminishes the attractiveness of investment and livability in the state.

How High Are Illinois’s Taxes?

There are many ways to measure and compare tax burdens and many individual taxes that can be compared. But in the aggregate, tax burden can generally be thought of tax revenues collected from households and businesses as a share of the productive commercial activities of the state. Such an aggregate tax rate represents the share of a state’s annual production that is charged by government to pay for public services provided to households and to businesses.

In the following analyses, we construct such an aggregate or average “tax rate” (ATR) for a state in any given year.

State’s tax rate (ATR) = state & local tax collections/state output

Tax revenues are those collected by all state and local governments in a state, rather than by state government alone. The measurement of an aggregate tax rate must include both state and local governments because the split of revenues collected between state and local differs from state to state. In each state, public service responsibilities are assigned differently to state government versus the state’s local governments—school districts, municipal governments, county governments, and special districts such as libraries and park districts. For example, particular public safety responsibilities may be alternatively assigned to the state highway patrol, county sheriff’s department, or a city police force. Given such differences, an “apples to apples” comparison can only be made by combining all revenues within a state into one measure of “state and local government taxes collected.”[5]

In the denominator of our measure of ATR, a state’s annual productive output is effectively measured by annual dollars of gross state product (GSP, the local counterpart of GDP), which represents total annual output from all industry sectors located within state boundaries. So, the tax rate (ATR) is the share of productive output (GSP) that is claimed by state and local government to pay for public services.

Looking at the Illinois aggregate tax rate from 1995 through 2010, we find that Illinois consistently maintained a lower tax rate that the national average (see chart).[6]

In the next chart, we compare Illinois’s ATR to both the U.S. average (green line) and its neighboring states’ ATRs during the same period (blue bars). As well as being lower than the national average, the Illinois tax burden was also lower than those of its neighboring states, with the exception of Missouri and Indiana.

It is generally thought that Illinois was able to maintain a low tax rate because it paid for current services through borrowing rather than through concurrent taxation. As documented by the Fiscal Futures Project, the state’s main borrowing vehicle was to underfund its mounting obligations for employee retirement. In particular, state government in Illinois maintains primary responsibility not only for its own employees’ retirement benefits, but also for those of the bulk of the statewide university system and the local school systems.[7] As of FY 2012, the unfunded pension obligations were estimated at $95 billion for the state’s five pension systems, which amounts to approximately $8,000 per capita. One estimated comparison among states for 2010 reported Illinois to have the lowest funded proportion of pension obligations, with only 45% of reserves available to meet promised payouts.

How Will Paying Off the Debt Affect Illinois’s Competitive Tax Position

Would raising taxes to meet Illinois’s public service needs (and pay off its debt) dampen economic growth? To answer this question, we look at estimates of expected gaps between Illinois’s revenues and ordinary spending. We recognize that Illinois will need not only to pay off pension-related debt, but also to meet other revenue demands for public services and other past-due bills. The state has been running in deficit, and will continue to do so to some degree, irrespective of the pension problem.

These estimates of future spending streams (and possible revenue needs) are from the Fiscal Futures Project (FFP). The FFP has consolidated the many State of Illinois Funds from which expenditures are financed. In addition, the FFP has examined past trends to predict future spending, and it has also incorporated expected new revenue demands related to, e.g., the Affordable Health Care Act. In our analysis, we take their projected average gap between spending demands and expected revenues for the years between 2011 and 2023. In particular, the gap reported in the final column in the table illustrates the hypothetical case in which Illinois cures its accumulated deficit through revenues alone. Under this scenario, the state incurs its ongoing service expenses as expected and pays down its accumulated unfunded pension liabilities on a 30-year schedule. If so, and without any new revenue enhancements, the state would run at a $12 billion per year annual deficit of expenses over revenue. This estimate is arrived at by assuming that Illinois’s recent hike in its personal income tax is allowed to expire, as it does under the current statute. The average gap is estimated to amount to 1.9 percent of GDP as measured for FY 2010.

Source: University of Illinois Institute of Government and Public Affairs Fiscal Futures Model.

To illustrate the effect on Illinois’s ATR of this further 1.9 percentage point claim on the state’s economy, we add this to the ATR that was actually in effect (on average) from FY 1995 through FY 2010. As seen by the red addition to the tax rate for Illinois in the following chart, the payment gap could potentially hike Illinois’s ATR by 22% percent and leave the state with a higher tax rate than its neighboring states and the nation.


It is clear from this exercise that, had public services been funded on a “pay as you go” manner, the state’s average tax rate would have been significantly higher than those of its neighbors and the nation for decades. Since public services would not have changed by using this method of payment, but taxes would have been higher, Illinois’s economic growth would likely have been lower. Going forward, at least part of Illinois’s accumulated debt will be paid for through revenue enhancements, which will push the state’s ATR above its long-run average, likely raising it relative to those of neighboring states

How much will this impede Illinois’s economic growth? Public taxes and services are not typically the most decisive factor in state growth and development. Indeed, many studies that have estimated the responsiveness of local growth to state-local tax differences find, on average, only a small to modest responsiveness of growth to state-local tax burdens. However, a tax rate hike of this size, which is conservatively estimated, would likely exercise a moderating overall influence on growth and development.[8] And for some types of business activity, especially those that could easily escape the burden of taxation by moving across a nearby border, the impacts may be greater.


[1] Per the State Comptroller, “there are over 602 active funds, four funds comprise what is commonly referred to as the General Funds. These four include the General Revenue Fund, the General Revenue – Common School Special Account Fund, the Education Assistance Fund, and the Common School Fund.” By one estimate, these General Funds comprise approximately 41 percent of the state’s consolidated funds.(Return to text)

[2] The Illinois Commission on Government Forecasting and Accountability reports unfunded obligations for state pension funds of $94.6 billion for fiscal year (FY) 2012. Unpaid bills are estimated to be at $7.8 billion at the end of FY 2013, possibly growing to $21.7 billion by FY 2018. (Return to text)

[3] The third option is to default on debt, including failing to fully meet pension obligations. This might also reduce the state’s ability to borrow. (Return to text)

[4] As of January 1, 2011, newly hired employees covered by state plans have had their age for full retirement benefit raised, cost of living adjustment trimmed, and maximum pension amounts capped, among other changes. (Return to text)

[5] The federal government also imposes taxes and sends grants-in-aid to state and local governments. These differ from state to state, and they are excluded here. States also share tax collections with their local governments (to varying degrees), which is another reason to combine state plus local tax collections in each state for comparison purposes. (Return to text)

[6] Governments also collect user fees, such as tuition and highway tolls, to pay for services. Calculations to include them are completed separately, and do not change our results. (Return to text)

[7] An exception, the City of Chicago School System funds and maintains its own retirement program. (Return to text)

[8] These estimates of likely hikes in the ATR are conservative, given the high levels of debt that are excluded from the calculations. State government also carries very high levels of unfunded retiree health care liabilities, amounting to approximately $40 billion dollars. Unfunded pension liabilities for governments overlying the city of Chicago amount to another $23 billion, while no comprehensive estimates are available for the many underfunded local municipal pensions throughout the rest of the state. Moreover, ordinary “bonded” state and local government debt levels across Illinois rank among the highest in the country—8th among 50 states in per capita terms. (Return to text)

Midwest Outlook Workshop

By Thom Walstrum and Norman Wang

On December 1, 2011, a group of experts convened to discuss developments in the Midwest economy in 2011 and to look forward to 2012 and beyond. The forum drew upon a variety of perspectives, hosting researchers from across the Midwest and from government, academic, and private institutions. As the conversation progressed, themes began to emerge.

Data from 2011 give a picture of an economy that is recovering, but lacking the vigor needed to return quickly to full employment. The outlook for the Midwest economy for 2012 is more of the same: slow improvement.

Looking beyond the current business cycle, the Midwest will be challenged by the economic fundamentals of a manufacturing-based economy. So far, economic development policy remains disappointing in addressing the challenges of diversification and competitiveness.

Sophia Koropeckyj from Moody’s Analytics noted that growth in the first half of 2011 was accelerating, but that it had slowed in the second half. The tepid pace of recovery means that the rate of job growth remains below the rate of population growth. It may take until 2017 to return to full employment. Koropeckyj highlighted manufacturing employment because it is concentrated in the Midwest relative to the rest of the U.S. She saw growth in manufacturing jobs in 2011, but noted that total manufacturing employment is still far below its pre-recession peak. Exports from the Midwest overseas continue to grow, but with possible challenges from a weak European economy in 2012. However, growth in Asia and South America could provide a backstop.

Ernie Goss from Creighton University provided a perspective on the rural economy that focused on the Plains states. They are doing better than many other parts of the country, driven by a good year for farms and farm-related businesses. Revenues were high in 2011, creating a push for consolidation that is driving up farmland prices (possibly to “bubble” levels). Federal Reserve economist David Oppedahl noted that farmland prices in other Midwestern states to the east are a bit stronger than in the Plains states. Price growth for the most productive land has outpaced prices for less productive land because of reduced recreational demand. While the farming industry did well in 2011, sectors that do not participate directly in the international marketplace (for example, construction) are subject to the same malaise afflicting other parts of the country.

Beth Weigensberg from the University of Chicago’s Chapin Hall discussed the CWICstats Dashboard Report, a quarterly assessment of the economies of Chicago and Illinois. She saw unemployment rise for Chicago and Illinois in the first half of 2011 even as labor force participation fell. Total employment is still 5% below its December 2007 level. Like other Midwest employment sectors, manufacturing employment is slowly rising from a trough in late 2009; it is still 15% below its December 2007 level.

George Erickcek from the Upjohn Institute provided an outlook on Michigan’s economy. Michigan lost 410,000 jobs from December 2007 to the trough in June 2009. It has recovered 85,200 jobs since then. Erickcek estimates that 37,100 (39%) of the new jobs were created by the auto industry. He noted that there has been no structural change for Michigan’s economy over the course of the recent recession and recovery. The auto industry is as important as ever. Even as many call for diversification, the Great Recession does not seem to have pushed Michigan’s economy in that direction.

In the near term, Michigan’s continued reliance on the auto sector will continue to lift the state and other auto-intensive communities in the Midwest. However, the longer term prospects are not so sanguine. As manufacturing growth begins to level off, longer term trends suggest little new employment will be generated by the sector. Some observers are a little more optimistic about the longer term. Federal Reserve economist Bill Strauss argued that rising overseas costs may result in the return of some manufacturing jobs to the U.S.

However, Geoff Hewings from the University of Illinois presented a less optimistic outlook on the region’s longer term future, predicting that the Midwest would continue to underperform the rest of the U.S. in several areas. According to Hewings, the Midwest’s GDP is forecasted to grow by 1.7% annually, compared with the 2.4% annual growth rate forecasted for the U.S. from 2007 to 2040. Over the same period, employment is forecasted to grow annually by 0.5% for the Midwest and 0.7% for the U.S., and personal income is forecasted to grow annually by 1.7% for the Midwest and 2.8% for the U.S.

Additionally, Hewings highlighted several trends that have shaped the Midwest in recent years. States are becoming increasingly interconnected as they fragment and hollow out; typical establishments have lengthened their supply chains by sourcing from more plants for increasingly specialized components (fragmenting) and are now less dependent on sources of inputs and markets within the state (hollowing out). Hewings noted the outsized volume of intra-Midwest trade as evidence; Midwest export trade to other Midwest states in 2007 amounted to $450 billion. Such strong intra-region trade linkages generate benefits for the Midwest economy during good times, but they amplify job losses during downturns. During the latest recession, 1.78 million jobs were lost in just five Midwest states, representing 20% of the total jobs lost in the U.S.

The close intra-region trade linkages in the Midwest sparked discussion about the need for more thoughtful and concerted policy actions within the region. Midwest states continue to play “beggar-thy-neighbor,” by offering selective tax abatements to lure businesses. Given the cohesion of the regional economy, such policies may be counter-productive. In particular, investment in overland transportation infrastructure to compliment the region’s goods-oriented economy would be worthwhile. Such investments should be carefully planned and coordinated both within and across Midwest states.

Selected presentations from the forum can be found on the following website link.

Manufacturing in the Seventh District: Agriculture, Construction, and Mining Machinery

by Thomas Walstrum and Bill Testa

As discussed regularly in this blog, manufacturing has long played an important role in the Midwest economy. One of our most prominent manufacturing sectors is agriculture, construction, and mining machinery. This industry’s products are the large machines that plow fields and harvest crops, tear up and repave roads, dig mines and rescue miners. To define the sector specifically, we use the Census Bureau NAICS code 3331.

Two companies headquartered in the Midwest are such household names that you may have played with toy replicas of their products as a child–earth moving equipment maker Caterpillar and farm tractor and harvester maker John Deere. These two companies are the Midwest’s largest in the sector by market capitalization and revenue. As measured by company value, the agriculture, construction, and farm machinery industry has experienced a significant recovery since the financial crisis in 2008. Stock prices for all the sector’s companies based in the Midwest are near their 52-week highs and above their 2008 peak. From a low at the beginning of 2009, the S&P agriculture, construction and machinery index has dramatically outpaced the growth of the overall economy. In addition to the two heavy hitters mentioned earlier, the Midwest is home to a number of other companies, both public and privately owned, with a significant presence in this sector.

A couple of the publicly traded companies overlap with other sectors: Oshkosh also manufactures defense and fire & emergency equipment; Manitowoc also manufactures food service equipment.[1]

Like company stock prices, industry employment grew steadily until the financial crisis in 2008 and fell significantly in the aftermath. Employment began recovering in 2010, but is still 32,000 below the 2008 peak. Jobs are spread relatively evenly among the three subsectors. In December 2010, mining accounted for 35% of the sector’s total employment, construction 29%, and agriculture 36%.

According to the U.S. Department of Commerce, there are over 500 manufacturing establishments for the sector in the Illinois, Indiana, Iowa, Michigan and Indiana. The counties that are part of major metropolitan statistical areas or MSAs have notable concentrations of establishments, but the map below shows that manufacturing establishments are well distributed throughout the region. Some rural counties have a relatively large number of establishments, such as Sioux County in northwest Iowa and Houghton County in Michigan’s western Upper Peninsula.

The construction, mining, and agricultural machinery sector is an important part of all manufacturing in the Midwest. In terms of value-added by this sector to total manufacturing activity, in 2009 the sector contributed 1.6% to total U.S. manufacturing and 3.8% to Midwest manufacturing.

Within the sector, a significant proportion of manufacturing takes place in the Midwest. In 2009, almost one-third of all employees in the sector worked in the Midwest and just over 40% of the value added by the sector came from the Midwest. The sector’s footprint is largest in Illinois and Iowa, but Wisconsin makes a significant contribution as well.

In spite of its relatively small population, Iowa is the second largest producer of construction, mining, and agriculture machinery in the Midwest. For this reason, the industry is particularly important to Iowa in per capita terms. In 2009, more than 6 in 1,000 Iowans were employed by the sector–more than four times the regional average of 1.5 and ten times the national average of 0.6.

As reflected in recent trends, future prospects are bright for growth in the agriculture, construction, and mining machinery industry. Emerging economies such as China and India are continuing to experience significant economic growth, thereby lifting demand for machinery. With the growth of emerging economies, exports from the U.S. are becoming increasingly important. Beginning in 2004, exports for the U.S. industry increased by about 20% annually until the financial crisis of 2008. The parallel increase in the balance of trade provides further evidence that exports became an increasingly important part of industry growth between 2004 and 2008. While exports took a significant hit in 2009, they have recovered somewhat in 2010, and the trade balance is still well above levels in the early 2000s.

Producers of agriculture, construction, and mining machinery also serve a large U.S. market. Domestic sales in 2009 totaled nearly $60 billion; and domestic manufacturers hold a significant proportion of that market—73.6% in 2009.

Companies based in the Midwest have a presence outside North America to varying degrees. For companies that reported such figures in their annual reports, an average of 45% of revenue came from outside North America in 2010. Not all of that foreign revenue is from exports because production often takes place outside the US. For example, using data from Caterpillar’s 2010 midyear report and fourth quarter 2010 earnings release, 45 % of their employment is U.S. based.

Among Midwest states, industry exports are most important to Illinois, representing 42.4% of sales, just below the U.S. average of 43.3%. For the Seventh District states, exports make up 31.0% of sales.


[1] Aside from company financial data, the descriptive data to follow covers only the particular establishment sites that are primarily engaged in manufacturing products in the sector, whether the establishments are owned by public or private companies. (Return to text)