What woes? The Rust Belt shines

Call it the Rust Belt no more.

Factories are humming. Workers have jobs. People who fled in the 1980s are coming back.

The industrial Midwest these days shines like a Teflon island in an ocean of international economic turmoil. Financial woes in Asia, Russia, and Latin America are hurting some manufacturers, but so far most have been able to shrug off the problems.

Their secret?

You.

US consumers are on a spending spree that's keeping manufacturers in the pink. They're buying new cars, bigger TVs, and more powerful computers. They're sprucing up homes with better furniture and new carpeting. There are worrisome signs Americans are dipping into savings to do all this. But economists call that a long-term concern, not short-term disaster.

"The rest of the world is pretty stormy and yet American industry is riding it out," says Gordon Richards, economist with the National Association of Manufacturers in Washington. "Consumers are continuing to spend.... We're doing better than we're getting credit for."

Take home appliances. Manufacturers enjoyed a banner year last year, shipping a record 55 million units of everything from washers to trash compactors. The Association of Home Appliance Manufacturers projects almost no dropoff in shipments this year: 54.8 million. "That's still awfully high," says Marian Stamos, vice president of major appliances for the Chicago-based organization.

Of course, the industry exports so little and faces so little foreign competition that it's largely insulated from the turmoil in international markets. But even industries with more foreign exposure are doing well. Automakers, for example, reported strong gains in January compared with a year ago. Vehicle sales rose 8 percent for Ford and 14 percent for the new DaimlerChrysler (setting a record even when previous sales of the two formerly separate companies are combined).

Manufacturing's strength is helping the Midwest turn a corner. Cities that lost population in the 1980s are rebounding today. Greater Detroit (which includes Ann Arbor), which lost 2 percent of its population in the '80s, has seen a 4.9 percent jump since 1990. Cleveland-Akron, a 2.7 percent loser in the '80s, is up 1.7 percent. Cedar Rapids, Iowa, notched a 7.7 percent rise after a 0.6 percent decline in the previous decade.

The US Census Bureau calls the region's turnaround "one of the most striking demographic and economic trends of the mid-1990s."

Pockets of problems

Not all manufacturers are doing well. Record amounts of imported steel are crushing domestic steelmakers. The industry is sinking under a mountain of imports. "What we're experiencing right now is unprecedented - how quickly it's happened and the huge volumes," says Jim Kosowski, spokesman for Wheeling-Pittsburgh Steel.

The Wheeling, W.Va., company saw imports create such havoc in its specialty markets that it sued nine steel importers. Last week, it reached an out-of-court settlement with one of the companies, which agreed to some restrictions on its imports and to buy a certain amount of Wheeling-Pitt products, although actual numbers weren't disclosed.

The rest of the domestic steel industry also got good news last week. The US Commerce Department made a preliminary finding that Japanese and Brazilian steelmakers had illegally dumped steel in the US, selling it for below the cost of production and up to 70 percent less than normal prices. Foreign producers are unloading steel at fire-sale prices in the US because their own domestic markets have dried up.

At press time, the Commerce Department had not decided what to do with the ticklish problem of Russia. Even though its steel imports to the US also surged last year, its economy is so weak the administration hesitates to hurt it further. A preliminary finding of dumping could lead to tariffs on steel imports if the federal government determines the imports have hurt domestic producers.

US steelmakers also filed new dumping complaints this week against eight countries.

The textile industry faces similar woes. Imports from countries including South Korea and Pakistan have swamped US markets and pushed prices down.

"We thought it was going to be temporary," says Dick Windham, spokesman for Burlington Industries Inc. "We still think it's going to be temporary, but it's a protracted, long 'temporary.' "

Last month, the Greensboro, N.C., company announced it would cut 2,900 jobs and shrink its US manufacturing capacity by a quarter.

Manufacturers' problems with imports haven't shaken their faith in foreign trade, though. "We're definitely being affected by the Asian crisis, but some sectors are being hit harder than others," says David Link, chief economist for the American Textile Manufacturers Institute, based in Washington.

While business is down around much of the world, US textile exports to Canada, the industry's leading market, were up 4.5 percent for the first 11 months of last year compared with the same period in 1997. Exports to Mexico, the No. 2 export market, are up 30 percent. Sales to the domestic auto industry and the home-building industry (especially carpeting) are also helping to stabilize the industry.

How long can it last?

It's not clear that US consumers can keep up their spending spree indefinitely, economists say. One troublesome sign: Consumers in the past three months of 1998 spent more than they earned. Long term, that can't continue, says Lisa Grobar, professor of economics at California State University at Long Beach.

But the long bull market in stocks has given many households extra spending power that's not reflected in the savings figures.

"We probably should be saving more," Professor Grobar says. But in the short term, "it's probably not as dire as it sounds to have 0 percent savings."