Much of National Steel’s hulking steelmaking complex here has been shuttered, leaving quarter-mile-long empty shells to dominate the brutally ugly, heavily industrialized waterfront in this impoverished city south of Detroit.
Yet, hidden among those decaying skeletons, newly modernized, computer-controlled mills are still spitting out tons of steel for Detroit’s auto makers.
So much steel, in fact, that what is left of National’s Great Lakes Steel complex is running flat out; Great Lakes should produce 3 million tons of sheet steel this year and may even start to export. Newly flush with unexpected demand for its products, National just announced plans in September to invest another $70 million in new high-tech steelmaking equipment here by 1990, the start of a $400-million capital spending program at the mill.
“We’ve been operating at 100% of capacity, seven days a week, night and day,” says National spokesman Art Warmuskerken.
The scene at National Steel is one that is being replayed over and over again across the industrial heartland this year.
“That steel mill,” observes Indiana University economist Jeffrey Green, “is a microcosm of what is happening throughout the Midwest.”
One year after the stock market crash jangled nerves and shook the economic confidence of countless Americans, what is left of the nation’s manufacturing base is booming.
Basic industries such as steel and autos have scrambled this year to keep up with a surge in domestic and overseas demand, thanks to a weak dollar that has made American goods less expensive than foreign products, both in the United States and in export markets, and relatively stable interest rates that have prolonged the nation’s recovery.
All that increased business is feeding into a streamlined manufacturing base that has been sharply downsized throughout the 1980s; after years of bankruptcies, plant closings and layoffs, inefficient companies and factories have been weeded out.
Now, many of the survivors are able to compete on a worldwide basis, and are running their remaining factories at full tilt just to keep up with their domestic and export orders.
Ironically, some observers argue that this Rust Belt renaissance has come, not despite the stock market crash but, at least in some backhanded way, partly because of it.
Washington’s quick decision in the wake of the crash to flush the economy with easy credit and liquidity--in order to avoid the oft-cited mistake after the 1929 crash of tightening up on monetary and fiscal policy at time when the nation’s wealth was already contracting--proved a great benefit to America’s capital-intensive industries.
After the crash, the Reagan Administration abandoned efforts to support the dollar in international markets in order to stabilize the domestic economy, and so the currency, already in the midst of a two-year downward spiral, fell sharply in the weeks following Oct. 19. Interest rates, climbing before the crash, plunged afterward.
Certainly, many economists note, most of the dollar’s decline predated the crash. And the dollar’s weakness, they add, was prompting an upturn in manufacturing months before the crash. “I think most of the dollar reductions that are benefiting manufacturing were locked in earlier,” says George Eades, chief economist for General Motors.
Climate for Recovery
Still, the government’s credit-easing policies do seem at least to have offset the crash’s impact on consumer confidence and buying habits. After a brief pause in November, sales of cars and other major durable goods recovered and today show almost no signs of crash aftereffects.
And, most importantly, the further weakening of the dollar, which made American goods cheaper overseas, along with the drop in interest rates, created a climate ripe for an export-driven recovery in late 1987.
As early as last November, Merrill Lynch economist Allen Grommet predicted that “exports will be driving manufacturing over the next few quarters.”
That is exactly what happened in the months following the crash.
Exports of manufactured goods soared to $18.2 billion last June from $13.9 billion in July, 1987, according to the Commerce Department.
As a result, with some studies now showing that manufacturing will account for 75% of the growth in the gross national product this year, heavy industry has become an enormous engine driving a dramatic recovery in America’s Midwestern industrial heartland.
Indeed, despite last summer’s drought, some economists argue, the Midwest has turned the best relative performance of any region of the country since the stock market crash.
“The Midwest has shown the most positive signs of any region of the country,” says Stanley Duobinis, director of regional economic forecasting for WEFA Group, a Bala-Cynwyd, Pa., economic consulting firm. “Its rate of growth is not the highest, but in terms of the change in its performance from where it was, the Midwest is the stellar part of the country right now.”
Adds Duobinis: “A lot of the rust has been polished off the Rust Belt.”
Now, Midwestern industries that had been pounded by imports for a decade suddenly are turning ocean-going freighters around, carrying their products back to Japan and Europe.
For example, Chrysler, which anticipated sales of only about 5,000 vehicles from a modest export program that it began last year, will sell at least 35,000 cars, vans and Jeeps in Europe alone in 1988 and predicts that total exports worldwide will hit 75,000 in 1989, says Robert Lutz, president of Chrysler’s automotive operations. The cheap dollar has even given Chrysler a chance to lower car prices overseas and attract new foreign buyers; the sticker price of its Jeep Wrangler in Japan, for example, has been cut by 12% in the past year.
For the U.S. auto industry as a whole, passenger car exports skyrocketed in the first half of 1988 to 74,086 units, more than double the 33,363 for the same period last year.
Exports of automotive components produced throughout the Midwest have increased as well; Ford announced in May that it will ship up to 80,000 four-cylinder engines from its Dearborn, Mich., engine plant to its European assembly plants, marking the first large-scale use of American-built engines in cars made overseas since the era of the Model T.
Chicago-based Borg-Warner, meanwhile, is shipping emission control equipment from its factory in Dixon, Ill., to South Korea for use on Hyundai’s small cars, many of which are, in turn, shipped back to the United States.
“We’re hearing from customers overseas that we haven’t heard from in years, asking us to quote them prices on our products,” observes GM Chairman Roger B. Smith. “Our exports are doing very, very well.”
Construction Equipment Booms
Meanwhile, in the steel industry, where American producers now actually enjoy lower costs than their Japanese competitors, exports are expected to double this year to 2 million tons, according to the American Iron & Steel Institute.
Construction equipment exports have jumped as well. Peoria, Ill.-based Caterpillar Tractor, one of the nation’s largest exporters, says foreign sales rose more than 32% in the second quarter of 1988. Cat’s exports have been led by strong overseas demand for its large track-type tractors, made in Peoria, and its mining equipment produced in Decatur, Ill.
Even the long-moribund makers of heavy factory equipment are posting spectacular gains in new orders.
Cincinnati Milacron, one of the nation’s leading makers of manufacturing equipment, says new domestic orders were up 34% in the first half of the year. The rise was sparked by a big increase in orders for plastics-processing equipment, for use by makers of plastic components for appliances and other products, along with a jump in orders for machine tools for the auto makers and other large manufacturers, says John Reading, a spokesman for the Cincinnati-based company.
Industrywide, new orders for machine tools rose 33.2% in August. Machine tools are usually large, expensive systems used in a wide array of manufacturing operations, and a surge in tool orders is often considered a good indicator of a general rise in manufacturing activity.
The government’s industrial production statistics bear out the evidence of a manufacturing-led recovery. The Federal Reserve Board’s industrial production index (with 1977 equaling 100) rose to 138.2 in August from 131.0 in September, 1987.
The Fed also reports that the nation’s factories are now running close to full blast. The board said factories are operating at 83.7% of capacity, up from 81.4% in August, 1987. And some economists argue that the current rate may be close to the real capacity of the manufacturing base. These economists believe that the government is still counting long-idled factories that will never reopen as part of potential industrial capacity.
A Vast Improvement
The turnaround in manufacturing is having its most dramatic impact on the economies of the big states in the industrial Midwest, where output is soaring. In Illinois, for instance, the state’s gross state product has risen a stunning 8% in the past year.
Indiana, now the largest steel-producing state in the nation, has seen personal income, adjusted for inflation, rise 2.9%, while employment has grown 4%. While those figures aren’t spectacular by Sun Belt standards, they represent a vast improvement over the early 1980s. “For Indiana, that is good news,” Green says.
In Michigan, business activity jumped to an all-time high in August, according to the monthly Michigan business activity index, published by Manufacturers National Bank of Detroit. Michigan, which produces about one-third of all U.S.-built cars, posted a 12.4% increase in motor vehicle output over 1987, the index reported.
While many factories in the Midwest initially tried to meet the increased demand without rehiring many workers, they are now finding it increasingly difficult to do so.
As a result, unemployment rates in some Midwestern states are now falling to levels previously seen only on the two coasts. In July, for instance, Minnesota’s jobless rate was just 3.5%, and Wisconsin’s was 4.2%. In Illinois, 11,000 new manufacturing jobs have been created since last year, while Wisconsin has gained 15,000.
“Earlier, manufacturing employment was declining even with output going up, because of cost cutting, but now demand is too strong,” notes Duobinis of WEFA.
“Both sides of the scissors are working--import demand is slowing, and export demand is growing,” he adds.
“It is a resurrection.”
Main Story, Part 1, Page 1