From the USA Today
WASHINGTON — The Midwest, with its heavy dependence on factory employment, had higher unemployment than the nation this year. Even though manufacturing appears to be rebounding, the region might not catch up in 2006.
The Midwest service sector is expanding, and the region has the fastest growth in export activity. Still, overall growth is being hurt by problems at domestic auto manufacturers, including Ford Motor and General Motors, as well as auto-parts maker Delphi.
High energy prices could also hit the Midwest slightly harder than other regions. While the region has become more efficient in energy use, it has increased its share of energy-intensive industries, according to research by Richard Mattoon, a senior economist at the Federal Reserve Bank of Chicago. Midwest factories are highly dependent on natural gas.
The federal Energy Information Administration predicts that winter heating bills will rise more in the Midwest than in some other regions. Midwest residents are forecast to spend 43 percent more for heating oil this winter than last, and 25 percent more for natural gas.
“The region has lagged significantly, and it will probably still lag … but it won’t lag quite so much as it has,” said William Testa, vice president and director of regional programs in the research department at the Chicago Fed. “Industrial production is nearing capacity, so hiring is accelerating a bit.”
National City Bank in Cleveland in a recent forecast predicted that the U.S. unemployment rate, now 5 percent, will decline to 4.8 percent in 2006. Hiring is expected to improve in the Midwest but unemployment will remain above the national average in many states.
National City pegs Michigan unemployment at 6.3 percent next year, down from 6.8 percent in 2005. The state is expected to shed more manufacturing jobs. Illinois and Ohio are forecast to have 5.6 percent unemployment, with faster growth in the service sector than the industrial sector.
Missouri is expected to fare better, with unemployment declining to 4.8 percent from 5.3 percent this year. Even within individual states, there are pockets of strong growth and areas of distress. “It’s a kind of a mosaic, not a uniformly gray picture, a picture that’s actually dark in some sectors, but big rays of sunshine are coming through in other places,” said Charles Ballard, economics professor at Michigan State University.
Robert Dye, a senior economist at Moody’s Economy.com, in a recent advisory to clients said the woes in the auto industry mean only “modest job and production” growth in the Midwest. The fact that auto jobs are concentrated in Great Lakes states is creating a dichotomy in the region, he says, with the Plains states outperforming those in the Great Lakes.
Dye expects the Midwest to underperform other regions in the near term, as distress in the auto sector hurts wages and employment and filters through to such related industries as construction. Still, demand for the region’s other manufactured goods should remain strong.
Slower growth in the past several years has given the region some advantages that could make it more attractive to businesses ahead. Home prices here have not experienced, on average, the huge appreciation as in some other parts of the nation. That puts consumers at less risk of a housing market downturn.
© Copyright 2004 USA TODAY, a division of Gannett Co. Inc.
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