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Study: Uncertain Outlook for Midwestern Factories

May 28, 2010 by · Leave a Comment 

Chicago Council on Global Affairs logoForest City, Iowa, , population 4,700, is a symbol of how the decline in U.S. manufacturing employment is taking a heavy toll on the country’s heartland, according to The Press-Enterprise, Riverside, Calif.

Over the past two years, Forest City’s No. 1 employer, Winnebago Industries Inc., has laid off more than half of its work force, which once numbered 4,500 and drew people from towns 50 miles in every direction.

Jason Parcher, a 38-year-old former Winnebago supervisor cut after nine years with the company, is among those coping with what executives, economists and analysts say is going to be the tough new normal in a lot of U.S. manufacturing towns.

“I was planning on retiring from that job,” he said. “I’d worked my way up … and I figured that would be the last job I needed to have and I would be OK.”

He was wrong, but he has plenty of company.

A recent study by the Chicago Council on Global Affairs titled “Past Silos and Smokestacks” warned “the rural Midwest, home to traditional Midwestern values, is in trouble. For years it has relied more on industry than on farming for its livelihood. Now that industry is vanishing.”

The decline, of course, has been going on for years, a function of globalization. But it accelerated dramatically in the recent downturn, which was especially brutal on manufacturing workers.

Manufacturing generates less than 12% of U.S. economic output and accounts for less than 9% of the jobs in the country. Yet it accounted for more than 26% of the 8.4 million layoffs in the downturn, according to the U.S. Department of Labor.

Over the past five months, some of those jobs have begun to come back, lifting hopes of a broader hiring spree. But only a fraction of those 2.2 million lost industrial jobs will ever return.

Because rural Midwestern towns rely on manufacturing even more than Midwestern cities, where service industries dominate, that is especially bad news for places such as Forest City.

“It’s huge,” said Tim Putnam, the assistant director of an entrepreneurship program at North Iowa Area Community College, which has seen interest spike as laid-off workers cast about for new ways to make a living.

“There are pockets that are absolutely devastated. They really don’t know where to turn to.” The trouble is, Putnam cannot help even a fraction of the workers. “Not everyone who is laid off is meant to start and run their own business.”

In a region famed for its work ethic and self-reliance, the layoffs have been a psychological as well as a financial hit.

“Most of these people have been employed their whole lives,” said Marilyn Hoffman, an official with the Community Cares Coalition, a group set up in November 2008 as Winnebago was implementing its massive layoffs.

“They don’t know how to start. And pride is a big issue. They don’t want to admit they’re unemployed. It’s very hard.”

Less Of Everything

The effects on the local economy are still reverberating. “There’s less retail, there’s less everything,” said Jim Oulman, who worked for Winnebago as an employee or consultant for 41 years but now serves as a Winnebago County supervisor and member of Forest City’s economic development task force.

In recent months, Winnebago has begun hiring back a small percentage of the laid-off workers as a result of a modest rebound in sales that has lifted spirits across the region.

But in an interview with Reuters in April, Bob Olson, Winnebago’s chairman, president and CEO, acknowledged the rebound his company has seen in recent months was a function of dealer restocking, not real end demand, and that he was still waiting for retail customers to return.

Less credit now

Adding to the uncertainty: Many analysts believe there is an important industry restructuring and recalibration going on as a result of the sunset of America’s age of credit-fueled consumption.

David Whiston, an analyst at Morningstar who covers Winnebago, says that in the run-up to the downturn, the company had scaled up its plant capacity and headcount, assuming that 2004 was the new normal.

In that year, the industry sold more than 70,000 motorhomes, an all-time high as consumers began to think of their regular homes as piggy banks they could tap whenever they wanted to buy a big-ticket item.

With an estimated 11 million Americans owing more on their mortgage than the home is worth and banks still smarting from their near-death experiences as a result of lax underwriting, experts say that credit-fueled demand may never return.

“I don’t think we’ll revisit 2004 levels any time soon,” Whiston said. “And we may never.”

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