Midwest industry's inroads on rustiness.
Cleveland — The Midwestern economy today is as much a patchwork as the relentless geometry of farmers' fields seen through the window of an airplane descending into the region.
It has been a strong recovery - particularly in the automobile sector, a powerful engine once again at work, pulling Midwestern industry into a new world of technology and improved productivity.
But long-term decline in the manufacturing sector - a ''racheting down,'' as one observer puts it - remains unreversed. It is still too early in the recovery to tell how employment will spring back. Although the region is not yet to the point of ''rust bowl'' apocalypse, some economists see a major downward adjustment of wages ahead.
This is the picture that emerges from discussions with a sampling of bank economists and Federal Reserve officials here and in Chicago.
Daniel A. Pavsek, vice-president and economist at AmeriTrust Company, a major Cleveland bank, seems generally optimistic that increased automation will help the Midwest hang onto its manufacturing jobs. Robots will make high labor costs less of a problem in the future, he says. Even with automation, he says, ''the jobs may end up back here anyway.''
Mr. Pavsek also expresses confidence that a growing services sector will take up the slack of an eroding manufacturing sector.
He gestures out his window toward new construction around the downtown area. ''It's what we call economies of agglomeration,'' he says. Decentralization of business services such as accounting and banking hasn't really worked, he maintains. Even if actual manufacturing work is shipped out to lower-wage areas of the United States or offshore, Cleveland and other Midwestern cities will still flourish as headquarters cities.
But although construction cranes adorn the horizon in downtown Cleveland, the sidewalks, sparsely trafficked even at noon, attest to a weakened economic pulse in a city that has lost virtually half its population since its peak of nearly 1 million in 1950.
Over at the Federal Reserve Bank of Cleveland, economist Robert H. Schnorbus is not quite so confident of the region's potential in services.
''Since 1980 there has been a sharp, steady decline in nonmanufacturing employment,'' he says. In the current recovery, health care and education - both consumer services - have been strong. But services to business - accounting, banking, and so on - remain weak.
''There are two explanations for this; it could be that manufacturing firms are hiring help in-house,'' Mr. Schnorbus says. As a statistical quirk, an accountant hired by a manufacturer is considered a manufacturing worker, whereas an accountant with, say, a ''big eight'' company is counted as a service worker.
''Or it could be that the decline in the manufacturing sector has seriously affected the growth potential in producer services. It's not clear what the link is. You would hope producer services would respond to the manufacturing recovery. But they haven't yet.''
In Chicago, Federal Reserve Bank economist George W. Cloos cites three reasons that the manufacturing upsurge has not dented unemployment:
* Extensive use of overtime, to the point of worker protests in some places.
* Greater automation in factories.
* Greater use of imported components. Auto workers have been recalled to plants in great numbers, but use of imported components has crimped employment at the myriad supplier firms. ''Some 25 percent of all Fords being assembled here have foreign engines,'' Mr. Cloos says. ''And for all Lee Iacocca's talk about buying American, Chrysler is using Mitsubishi engines.''
He adds, ''National figures on business equipment have been very good, but this has been concentrated in electronics,'' to the benefit of California, Texas , Massachusetts, and New York, rather than the Midwest.
The Midwest's farm-equipment makers and other heavy manufacturers have had to deal not only with poor domestic markets but with foreign markets that have been even worse. Mr. Cloos says Caterpillar, for instance, has seen export sales decline from a peak of some 55 to 60 percent of total sales in 1981 to about 33 percent now.
At the First National Bank of Chicago, Nina M. Klarich, vice-president and chief regional economist, says, ''It's been a long recession accompanied by a lot of rationalization in basic industries. It's not uncharacteristic to have a recovery without an employment recovery. It's still very early in the cycle,'' and too early to see what the permanent job loss will be. The domestic auto industry had 933,000 workers going into the brief recession of December 1969 to November 1970, she says. That employment peak was not regained until the fourth quarter of 1972.
''This (latest) recession is even more severe,'' Dr. Klarich says. ''Employers are going to hold off hiring until they are certain of the demand structure. I'm not suggesting we'll ever regain pre-recession employment levels in these industries; I'm saying it's still too early to tell.''