Signs of Recovery Are Budding

THANKS to manufacturing, the Midwest has felt the recession more lightly and weathered it better than the rest of the country. Domestic demand for Midwest-manufactured products slipped, but a big boost in exports, especially of heavy equipment, offset the decline.

That's just the opposite of the last recession, when Midwestern manufacturers faced stiff competition from imports for shares of a shrinking market, says Diane Swonk, senior regional economist at First National Bank of Chicago.

She cites one mid-sized company that went from no exports in 1980 to selling 50 percent of its output abroad today.

Illinois even experienced an increase in employment through the first quarter, notes Richard Peterson, chief economist at Continental Bank in Chicago.

As foreign economies slow down, though, Midwest manufacturers are expected merely to maintain the market share gained recently.

The Achilles' Heel of the Midwest has been Michigan, where the automobile industry has endured dismal sales as consumers made cautious by the Gulf war bought used cars instead of new.

Now, inventories are so low that no pickup in sales is even needed to spur auto production.

Sales are, however, turning up.

Ms. Swonk says that auto companies have announced plans to boost production by 25 percent in the third quarter from second quarter levels. The resulting orders from Detroit will put the region's steel factories back to work at full capacity, she adds.

Meanwhile, "transplant" factories like Honda's are continuing to boost their local content due to political pressure and the rising cost of importing from Japan.

Agriculture is "still going reasonably well" in the Midwest, says Gary Benjamin, agricultural economist at the Federal Reserve Bank of Chicago. However, corn and soybean exports have declined.

"It's been a disappointing past six months," says Mr. Benjamin.

And dairy prices have fallen 20 to 25 percent to their lowest level since 1970 from last year's record high prices because supply constraints have been removed from the market.

Wet weather delayed planting in Iowa, Minnesota, and Missouri, but a Department of Agriculture meteorologist says the crops are developing well. He foresees no major impact from the delay.

Commercial real estate will remain a drag on the Midwest's economy. Housing is in better shape, not having been over-built during the 1980s, says Robert Schnorbus, senior business economist at the Federal Reserve Bank of Chicago.

Sales and new construction have been trending upward since February.

One 136-year-old real estate company reported its highest-ever dollar volume for the January to May period.

Home purchasers are bringing furniture sales back nicely, Swonk says. And some apparel stores report a dramatic turnaround in sales.

The 1990s won't see the kind of consumer-driven, debt-fueled activity that caused the United States economy to grow at an unusually high 3.8 percent between 1982 and 1989, she says.

"The '80s were the excess spending decade," Swonk says.

"We won't see that again" because income growth has slowed and taxes are going up. Swonk expects the US economy to grow at a 2 percent annual rate during the 1990s.

"It's a pretty easy bet that the Great Lakes will not only do better than most regions, but exceed the nation as a whole" as measured by personal income growth, Swonk says.