Rustbelt Renaissance?

It was a big week for Michigan as GE picked it as the site for a new technology center and GM (GMGMQ.PK) announced that the state was the winner in the race to land a new plant to manufacture small cars. Maybe Flint should think twice about bulldozing all those houses.

From the NYT:

General Electric will build a research center that could bring more than 1,100 jobs to Michigan, the company announced Friday.

The center, called the Advanced Manufacturing and Software Technology Center, will be about 25 miles outside Detroit in Van Buren Township. G.E.’s plan is to hire engineers and scientists in the region who have been put out of work by the shrinkage in the auto industry.

G.E. said that it would invest about $100 million to build the site and that it would benefit from more than $60 million in state incentives over 12 years.

This is a coup for Michigan. These are high value jobs and as the article indicates, there is going to be a lot of emphasis on renewable energy technologies. It’s the type of investment that’s going to get a lot of notice from Washington, probably money as well. In all likelihood, manufacturing will tend to gravitate to the area to take advantage of any advancements that come out of the GE effort.

Also from the NYT:

General Motors said on Friday that it would reverse plans to close two plants near Detroit after Michigan won a three-state battle to be the site where G.M. will build a new small car.

GM said that it had chosen to make the car at its Orion Township assembly plant, which was scheduled to close in September, over plants in Janesville, Wis., and Spring Hill, Tenn.

A metal-stamping plant about five miles away from Orion in the city of Pontiac will stay open to supply the Orion plant. About 1,400 of the 5,000 jobs at those plants will be retained.

Not quite as big a deal as the GE victory but it does preserve a lot of jobs and note again we’re talking about a product that’s politically favored. There’s probably better job security building small cars than there is building SUV’s. Regardless of their profitability, the government is likely to make sure they get built and get sold.

So props to Michigan, but I wonder what all of this means for the country from a demographic point of view. There’s clearly a bias in Washington towards rebuilding the manufacturing capacity of the U.S. That would seem to play into the hands of the industrial Midwest pretty nicely. Let’s see, they have lots of idle manufacturing real estate that can be had for a song, skilled workers and an abundance of low cost housing. Sounds like a place I’d look if I was going to start manufacturing some renewable energy components.

In the 1950’s and 1960’s a great migration took place as workers from the midwest went to California and the sunbelt in search of well paying jobs in the defense industry. They found them and as the sunbelt expanded more workers came to build the housing and support industries that were needed. Now that job factory is in serious trouble. The defense industry started shrinking two decades ago and continues on that track. Growth has slowed to a crawl and there are more houses and dry cleaners and insurance agents than the sunbelt needs. The model is seriously bent if not broken.

Government money used to build aircraft carriers, fighter jets and defense systems created the great migration west and south. Will government money now devoted to wind turbines, solar panels and advanced research in alternative energy sources now induce another massive population shift? It doesn’t seem unreasonable to assume that it might. Economics, infrastructure and politics are all on the side of the Midwest right now.

Right now the American middle class is focused on jobs in a way that it hasn’t been for over thirty years. If good, high paying, secure jobs are or appear to be available in other parts of the country, I fully expect that workers would move in an instant. Since it looks like those jobs might be in the Midwest some of the Sunbelt cities might want to see if they can get a deal on bulldozers from Flint.

Comments

[Dave Wrixon:]

Perhaps the first step on a long road home.

Jun 28 01:54 PM

[Mad Hedge F...:]

I chatted with Jeff Rubin last night, former chief economist with CIBC World Markets, who reaffirmed my own hyper-bull case for crude in bucketfuls. He was in San Francisco, admiring our civic planning and mass transit system, as part of a tour to promote his new book “Why Your World is About to Get a Whole Lot Smaller: Oil and the End of Globalization.” We are in the bottom of the ninth inning of the hydrocarbon age. The next super spike will take us to over $100/barrel within 12 months of the beginning of an economic recovery, and much higher after that. The problem is that we are losing 4 million barrels/day through depletion just when demand is increasing. The only offset will be dirty, foul, huge carbon footprint, $100/barrel Canadian tar sands, which will double, to account for 40% of our imports. The biggest increase in consumption is in OPEC itself, where consumption has ballooned to 13 million barrel/day and oil is being wasted on a prodigious scale, compared to only 7 million b/d in China. Gas there costs only 25 cents/gal, utilities in Saudi Arabia pay only three cents/gallon for bunker fuel, and Dubai is blowing 3,000 b/d equivalent running an indoor ski resort. Oil over $100/barrel will bring globalization to a screeching halt. Economies will go local because it will cost too much to transport goods, as we have in the past. No more California avocados in Toronto. More importantly, no more Chinese steel in the US, or any other heavy exports, which will lead to a resurgence in domestic manufacturing and the jobs that come with it. Last year $90 of the $600 cost of Chinese steel went to shipping costs. $10/gal gasoline will take 50 million of our 240 million cars off the road. Even if we replace them with electric cars, we don’t have the power grid to juice them. Chinese exports will collapse, but so will their Treasury purchases, meaning no more bailouts for us. Oops.

Jun 28 03:43 PM

[Davewmart:]

Madhedgefundtrader,
I agree with much of what you have to say about oil.
However, you say:'Even if we replace them with electric cars, we don’t have the power grid to juice them. '
We would indeed have the gas to juice them. Numerous Government studies etc. have shown the very modest impact they were projected to have on the grid, even at high levels of penetration.
It has now been pointed out that we would save the present large amounts of electricity needed to refine oil proportionately to how many electric cars we put on the road, so the net impact is zero!
www.chiefengineer.org/...
evworld.com/article.cf...

Jun 29 04:02 AM

[Loan Survivor:]

Good news for the Midwest? Unbelievable!

Tell the banks so they'll start lending here again.

Even though California, Nevada, Arizona and Florida are depreciating faster than the Midwest, banks would still rather lend there than here.

Jun 29 09:12 AM

[flipdog1:]

The transition from OIL to EV should be a natural progression,based on the economics of transportation costs, which can be done with leadership.Pushing the folks will leave a lot of unhappy campers.

Jun 29 09:20 AM

[relaplan1:]

Resurection of the rust belt is pure politics! These are all high tax, business hostile states. For most of them, bankruptcy is just around the corner.

GE and NBC are hoping to survive by playing foostie with Obama.

Jun 29 03:32 PM

[GMAC:]

Manufacturing can't make a rebound in the US until low cost manufacturing countries come into cost parity with the USA. The only new manufacturing jobs coming to the midwest are government created jobs for expensive inefficient products, like windmills and solar panels. The manufacturing of efficient low cost products that people actually want to buy will be driven overseas by new government regulations on healthcare and energy costs. A heck of a way to rebuild an economy.

Jun 29 04:13 PM

[Old Trader:]

A couple of weeks ago on Bloomberg TV, there was an interview with a gentleman who runs a municipal investment program (I've forgotten the proper name for such an entity) in the Kalamazoo area that has attracted a couple of big pharma firms into opening a couple of research labs there. Efforts like this are what's going to be needed if the US is to regain its competitive edge ( I seem to recall at least one of the firms was a foreign one).

Jun 29 07:22 PM