The Former Rust Belt Now Shines As Manufacturer of Economic Growth

THE Midwest, long the dead weight of the economy, is rumbling today as the nation's most robust engine for economic growth.

Midwest manufacturers have recently helped prevent the slowing national economy from sputtering into outright decline.

In some pockets across the region, the vitality is extraordinary. In Oshkosh, Wis., Armstrong-Blum Manufacturing Company is having trouble fully staffing its machine-tool plant. Winnebago County, Wis., is boasting an almost unheard-of unemployment rate of less than 2 percent. More broadly, Michigan logged an unemployment rate in October of 4.4 percent, its lowest in more than 25 years.

The numbers stand in sharp contrast to such states as California, where the jobless rate persists at 7.8 percent.

Indeed, the 10-state Midwest region boasted the lowest unemployment rates of any region last month, helping lower the nation's jobless rate to 5.5 percent, according to the Labor Department.

''Employment in the Midwest has held up and we're able to act as a floor'' for the economy, says David Allardice, senior vice president at the Federal Reserve Bank of Chicago.

Should current trends continue through next month, the Midwest will have posted 10 straight years of employment growth greater than the national average. This is the longest such run since World War II, according to the Federal Reserve.

From auto-parts plants in northern Michigan, to the hulking steel mills of northwest Indiana, to washing-machine assembly lines in central Iowa, Midwest factories are buzzing with a verve unmatched by any other region. The Midwest is not as strong as it was during the early stage of the current recovery. But it is holding up better than anywhere else.

Buoying the nation

This is the second time this decade that the Midwest - the historic hub of US industry - has significantly buoyed the national economy. Regional manufacturers led the country out of the 1990-1991 recession.

For years, Midwest manufacturers stumbled because of inefficiency and stiff foreign competition. Today, they more often stand as models of stable employment and streamlined production.

''The term Rust Belt is obsolete; American manufacturers came out of the last recession far more competitive than they started in the 1980s,'' Secretary of Labor Robert Reich told the Monitor.

Midwest manufacturing, although slowing, continues to grow faster than manufacturing across the national economy. Regional exports, a valuable prop during a recession, are outstripping the national growth rate of exports. Midwest manufacturing exports last year grew three times faster than the national average, according to the Commerce Department.

The transformation of the Midwest from weak link to key link in the national economy could hardly be more extreme. During several recessions during the 1970s and '80s, the region's manufacturing, retail sales, employment, and housing all shrank far more than the national average. Both investment and millions of workers headed south. Many of the region's companies were viewed as beyond recovery.

''We've been to the brink and looked over the edge, and that is part of the reason for the ongoing push to improve productivity,'' says Diane Swonk, deputy chief economist at First Chicago Corp.

Midwest manufacturers ''don't want to repeat [the hard times]; they want to be much better prepared'' for the next downturn, Ms. Swonk says.

America's industrial core has turned around largely because of success in shaking out inefficiency, routing foreign competitors, and investing in new plants and technology. For example, capital spending per worker in the Midwest was 9 percent higher than elsewhere from 1986 until 1990, according to the Fed.

Midwest manufacturers have also benefited from economic forces that, after years of hobbling them, now give them zing, says one Federal Reserve analyst.

Oil is cheaper in real terms than at any time in more than 30 years. Comparatively low long-term interest rates are encouraging the purchase of appliances, autos, and machinery that are the mainstay of Midwest manufacturing. And exports have surged with the dollar's decline in value.

Perhaps more than any other industry, machine-tool makers illustrate how the Midwest has sweated through a bootstrap recovery. The industry is vital to manufacturing, producing everything from screws to robots.

Expanding exports

Foreign markets have been key to the revival of machine-tool companies. Export orders, tallying $515 million, more than doubled during the first nine months of this year compared to last year.

''Exports are growing much faster than domestic sales,'' says Don Armstrong, vice president at Armstrong-Blum Manufacturing Co. Machine-tool makers have also expanded sales to the resurgent auto industry, which accounts for up to 20 percent of regional economic activity.

As a result, machine-tool makers have been on a hiring binge. Since 1993, the companies have increased their ranks by 13 percent to 58,600 hourly and white-collar workers, according to the Association for Manufacturing Technology in McLean, Va.

''This was an industry that was viewed as down and out, beaten by the Japanese, Germans, and other countries,'' says Mr. Allardice: ''Now it has pulled itself back up.''