In This Recession, The Rust Belt Looks Pretty Shiny

When recession struck the nation with brutal force a decade ago, no region of the nation was as traumatized as the Midwest. Between early 1979 and late 1982, manufacturing activity fell by about 13% in the U. S. as a whole, but it plunged a chilling 44% in the Midwest. Suddenly, the nation's industrial heartland faced the unexpected prospect of multiple plant closings, soaring unemployment, and dark prophecies of the deindustrialization of America.As the chart suggests, the recession that started last year is treating the Midwest in a considerably kinder and gentler manner. The reason is not simply that such ailing industries as financial services, defense, and real estate are more concentrated on the East and West Coasts. In the past decade, observes economist Robert Schnorbus of the Federal Reserve Bank of Chicago, "Midwest manufacturers have become both highly competitive and more export-oriented."

One sign of this improved competitiveness: Despite the onset of recession, all of the major Midwest manufacturing sectors, including transportation, outperformed their national counterparts last year. Even the region's service sector has been slowing less rapidly than services nationwide.

Another plus is the fact that theMidwest isn't reeling from a real es-tate bust. It hasn't been plagued bycommercial overbuilding. And the recent signs of life in both housing startsand new home sales have been largely concentrated in the Midwest. Indeed,the region's existing home prices inFebruary were up 3% over their year-earlier level.

Job trends have also been faring relatively well, except in automobile-intensive Michigan. At last count, notes Merrill Lynch & Co. economist Laurie Allen, total employment was still above year-earlier levels in such states as Illinois, Indiana, Ohio, and Wisconsin. DRI/McGraw-Hill says the region's labor markets are sporting a new competitiveness, with manufacturing pay levels, except in Michigan and Illinois, now running below the national average.

Because its manufacturing sector has proved so resilient, says Merrill's Allen, "the Midwest will be spared the worst of the current downturn and has strong prospects for the coming upturn."