Midwest Manufacturing Booming With 6.4% Annual Growth, Automotive Output Grew 12.9%

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by: Mark J. Perry

The Chicago Federal Reserve released new data today on Midwest manufacturing activity. It reported that its Midwest Manufacturing Index increased 0.3% in March from February, following a 1.1% monthly gain in February, and reached the highest level in almost five years. On an annual basis, regional manufacturing activity in the Seventh Federal Reserve District improved by 6.4% in March from a year earlier, more than twice the annual 2.9% increase in the national manufacturing component of industrial production through March (see chart below).

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On a quarterly basis, Midwest manufacturing output grew by 6.1% during the first quarter of 2012 from a year ago, and national manufacturing output grew by 2.6%. In comparison, the overall US economy (real GDP) grew by only 1.8% from the first quarter of 2012 to the first quarter of 2013.

Here are some other highlights of manufacturing activity in the Seventh Federal Reserve district that covers Illinois, Indiana, Iowa, Michigan, and Wisconsin:

1. Midwest machinery output in March gained 2.5% from its year-earlier level, just slightly below a 2.6% increase in machinery output at the national level.

2. Midwest steel output improved 4.3% from its March 2012 level, almost twice the 2.3% increase in national steel output over that period.

3. The Midwest’s automotive output increased by 13.3% in March from a year ago, more than twice the 5.6% annual gain in national automotive output. March was the 18th consecutive month of a double-digit increase in Midwest auto output starting in December 2011. The index reading of 99.1 for Midwest auto sector production in March was the highest level since December 2007, more than five years ago, and brings auto industry production in the Midwest back to a level just slightly below the level of output when the recession started (see chart below). On a quarterly basis, Midwest automotive output grew by 12.9% during the first of this year compared to the same period last year.

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Midwest manufacturing output growth during the first quarter of 2012 at 6.1% continues to lead national manufacturing output growth (2.6%), which continues to lead overall U.S. economic growth measured by real GDP (1.8%). Today's Chicago Fed report on Midwest manufacturing provides further confirmation that the U.S. manufacturing sector, especially factory activity in the Midwest region, remains at the forefront of the economic expansion measured by growth rates in real output.

The Midwest’s automotive sector is very close to making a complete recovery from the 2007-09 recession, with automotive production in the Midwest at the highest level in more than five years in March, just slightly below the December 2007 level. In a very interesting turnaround, growth in manufacturing output throughout states in America's frequently dismissed Rust Belt is so strong that Midwest factories are now a main driver of the U.S. economic expansion.