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April 17, 2006

Manufacturing and regional policy

The manufacturing downturn that began the current decade affected the Midwest more severely than the rest of the nation. In response to recent manufacturing decline, at least one consortium of manufacturers is now forming on a region-wide basis to share best practices and to promote manufacturing in the Midwest.

As measured by manufacturing employment, the combined declines in the Seventh District states of Illinois, Indiana, Iowa, Michigan, and Wisconsin were very sharp. The chart below shows a decline of 18.7% in the Seventh District since 1999, accounting for a net job loss of 616,900 workers in the sector. The pace of these declines was roughly in line with the national experience. However, because the region is so highly concentrated in manufacturing, the sting of manufacturing decline was sharper here. The second half of the chart below recasts manufacturing job loss in the region, weighting it proportionately by the higher concentration of manufacturing in the region versus the overall United States. In doing so, the index suggests that the impact of the actual 18.7% decline in the Midwest was similar to that of a 25.7% nationwide decline.

Source: Bureau of Labor and Statistics/HAVER Analytics
Click to enlarge images.

Manufacturing job losses may also be magnified in the Midwest to the extent that ancillary activities to manufacturing are lost, such as transportation, warehousing, and the business services purchased regionally by manufacturing companies. Estimates are that, for each $1 of manufacturing production, manufacturing companies spend another 33 cents on purchased services.

Both Midwest manufacturing output and manufacturing employment are growing once again, roughly keeping pace with the nation. However, in the Seventh District, neither recent gains in output nor employment have as yet made up for previous losses.

One response to lagging manufacturing has been the formation of a multi-state coalition of manufacturing organizations named the Great Lakes Manufacturing Council. Initiated by the Detroit Regional Chamber of Commerce, last year the group began working on a regional economic development entity to position the region to compete in the global marketplace.

Last month, the Council traveled west to Chicago to broaden the discussion and partnership among manufacturing stakeholders. Those who are interested in participating or learning more should contact Lisa Katz, Director of Government Relations at the Detroit Chamber.

Click to enlarge image.

To date, the Council has identified these top priorities: 1) clarifying and promoting the region’s manufacturing image to the world and to incoming work force; 2) developing and certifying work force skills relating to manufacturing activities; 3) identifying and sharing best innovative practices and technologies among manufacturers; 4) keeping the vital U.S.–Canada border open and efficient for the flow of goods and people; and 5) articulating infrastructure needs to maintain the region’s advantage in logistics.

Are such efforts worthwhile? The results of such initiatives have been little studied. And the strategic responses of individual companies most likely overwhelm cooperative policy in ultimately determining competitive strength. However, manufacturing operations in the Midwest are tightly linked through supply linkages and through a shared labor pool and transportation infrastructure. And so perhaps the recent time of stress will spur cooperative policies that prove to be helpful in sustaining the region’s manufacturing base in the years ahead.

Posted by Testa at April 17, 2006 10:22 AM


Bill, in answer to your question, "Are such efforts worthwhile?" My answer is Yes!, but only if it is industry driven and has the right priorities. As far as I can determine the Council is not industry driven & doesn't have the right priorities. What is "promoting the region's manufacturing" going to do for the companies' bottom-line? When every State has a tech transfer & manufacturing extension why has this group taken up "...sharing innovative practices..."? Priority #4 seems too Detroit & is there a chance the border could close & become inefficient? So that you don't think this is totally negative there is some merit to Priorities #2 & #5. While I applaud the Detroit Chamber wading into this issue they don't seem to be totally neutral as evidenced by the folks who attended the initial gathering. If not them then who or what organization? How about a joint effort between the Federal Reserve Bank of Chicago & the respective State Manufacturing Associations? Having been the executive director of a Department of Commerce in the Midwest I would have suggested State government leadership, but I'm not sure they can see past the fierce competition between the States. Thanks for your focus on an important and vital sector of the Midwest economy.

Posted by: Tim Monger at April 21, 2006 1:18 PM

Tim Monger raises a number of important points and good suggestions.

This movement originated in Canada with the proposal to begin a dialogue about the importance of manufacturing success to the Great Lakes region. More than 60 organizations throughout the region came together to develop the dialogue, titled the Great Lakes Manufacturing Forum. The coalition represented a broad range of stakeholders in manufacturing,including a number of manufacturers themselves, as well as manufacturing and manufacturing-related organizations. They chose the themes for the forum, they created a series of action steps, and they also said that there must be a way to carry forward, to work together regionally; otherwise, there would be no point to the dialogue. What emerged from the forum is the Great Lakes Manufacturing Council. The council is putting up a big tent for all who want to see manufacturing succeed.

We have heard many times that manufacturers expect their associations to engage in this effort on their behalf (They have limited time, and isn't that why they pay dues?), and we have been reaching out in a systematic way to the manufacturing associations throughout the region, as well as to some of the economic development organizations. We are also confident that manufacturers themselves will continue to increase their involvement as the council carries through with its projects. Two leading Chicago-area manufacturing leaders, Bill Jones of Cummins-Allison, and Glenn Johnson of Oakley Millwork, have applauded the council's efforts. Those who are engaging will set the tone for the organization's priorities. And we certainly welcome the Chicago Fed's active interest.

Many participants from throughout the region, including Ontario, have played a significant role in shaping the five themes and priorities. Regarding INNOVATION, there is the belief that the states and Ontario have much to learn from one another, especially as it applies to mid-size and small manufacturers. Same is true for WORKFORCE initiatives. (An important bi-national workforce conference has already been held.) The view of participants is that BORDERS are an important part of an overall LOGISTICS system that makes the Great Lakes region perhaps the most-integrated manufacturing region in the world, and we are anticipating a broad approach to the challenge of improving on the region's logistics advantages. Participants have said that IMAGE is also the tie that binds the other four themes, and they believe that it's way past time to get out the good news about the competitive advantages of Great Lakes Manufacturing.

Posted by: Ed Wolking Jr at April 24, 2006 6:53 PM

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