Health Care and Economy and Education & Workforce Development and Government

ECONOMIC ANALYSIS: Michigan's job pain is felt throughout the Midwest

February 28, 2005

At the end of last year, the unemployment rate in Michigan was 7.3 percent. That was more than 2 percentage points higher than Indiana's. No state in the country had a higher jobless rate.

That's not a big story in the Hoosier State. We have our own economic challenges, after all. But perhaps we should be paying a bit more attention. We're not exactly immune to the forces that are dealing such harsh blows to the Michigan economy right now. In fact, some communities in Indiana are directly in harm's way.

For the state that is the center of the automotive universe, home to headquarters of two of the three largest vehicle manufacturers in the world, you would think these would be good times for Michigan. Even if 2005 ends up being the slower year for light vehicle sales that many are predicting, the average of 16.7 million units sold annually since 2001 has to be considered very, very good.

But the Michigan economy is anything but that. Employment continued to fall throughout 2004, and is now down 344,000 jobs, more than 7 percent, since its pre-recession peak. Local and state government budgets are in disarray, and more cuts to vital services like education, health care and roads are looming.

The auto industry, Michigan Gov. Jennifer Granholm is reputed to have said, is not what it used to be. Many Indiana communities would agree. After all, the recession year of 2001, when so many cities in Indiana were beset with factory closings and cutbacks, was the secondbest year for vehicle sales in the industry's history.

But that industry is changing right before our eyes, for the second time in the past 20 years. Insiders have seen it coming. The rest of us woke up to it the day we turned our televisions on and saw the first ad for the new Honda pickup truck. A Honda pickup truck?

That's what's in a lot of American driveways these days. Foreign nameplate brands are now established in virtually every market segment and they are doing well. But they're not necessarily produced offshore even though the imported share of the total U.S. market now claims almost one car out of every five. They're increasingly coming from the domestic production facilities of companies like Toyota, Nissan and BMW. And they're not coming from Detroit.

What is more, since so-called captive supplier plants, whose production must be closely coordinated with the assembly plants they serve, are typically located in close proximity, Michigan's loss is not confined to jobs on the assembly lines. It's fair to say the center of gravity is shifting in the auto industry, away from a tight circle around southeast Michigan, toward a belt that runs through the South, stretching from San Antonio to South Carolina.

Its not the first time the geographic concentration of industry activity has changed. Midwest states like Indiana benefited during the last industry shift, when competition forced domestic manufacturers to rethink their costly strategy of locating assembly plants near final customers. In the late 1970s and 1980s, assembly plants actually moved back to the Midwest, bringing their suppliers with them and helping vehicle employment grow here much faster than elsewhere.

But now the movement is south and for Indiana that hasn't been all bad news. Certainly, the Toyota investments in Princeton and nearby Kentucky, not to mention the rising fortunes of Honda in nearby Ohio, are opportunities for state suppliers. But these bright spots aside, the falling fortunes of Michigan, which mirror the declining market shares of the Big Three automakers, are seismic shifts few Indiana communities can safely ignore.



Barkey is an economist and director of economic and policy studies at the College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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