Posted on Tue, Jan. 06, 2004
Jobless recovery sends towns scrambling
By Edmund L. Andrews
NEW YORK TIMES
ROCKFORD, Ill. - The stock market is surging and the economy appears to be booming, but Judith Pike is getting out of business.
"I'm finished; I'm out of here," said Pike, owner of Acme Grinding, whose customers have been vanishing and whose work force has shrunk from 40 to four. Two days before Christmas, Pike sold her business and more than 40 machines used to grind and finish metal parts. "It will be for pennies on the dollar," she said. "Less than what it cost to buy just one of these machines."
Considering that nearly every scrap of data suggests that the American economy has finally climbed out of the doldrums and is humming at its fastest pace in at least four years, Pike's timing may seem unfortunate. But factory owners like her have seen their worlds turned upside down. And their struggle goes a long way toward explaining why this continues to be such a joyless recovery.
More than 11,000 jobs have disappeared in and around Rockford in the past three years, and many of those are not expected to return. Motorola shut down a big repair plant not far from Pike's company last year, eliminating more than 1,000 jobs, even as it invested $1.9 billion in a new electronics factory in China. Textron is closing several factories that make metal fasteners. And industrial parks are swimming in "for sale" and "for lease" signs.
"We've been through downturns before, but this time it's different," said Malcolm Anderberg, owner of Dial Machine Inc., which does contract manufacturing. "This time, the work is leaving the country, and it's not coming back."
In part, this is an old story. Manufacturers have been shedding jobs in the United States for decades, moving plants to low-wage countries or squeezing ever more production from fewer workers at home. But the process accelerated recently, with manufacturers trimming a whopping 2.8 million jobs over the past three years alone. A study published in August by the Federal Reserve Bank of New York concluded that more than half of those job losses stemmed from structural changes and were likely permanent.
History leaves little doubt new jobs will eventually replace the old, and workers' incomes can still rise. But the outlook for the short and medium term remains grim. This is the second "jobless recovery," the first having occurred after the slowdown in 1990 and 1991. Before then, factories in cyclical industries had tended to be the biggest source of employment gains once the economy began to revive. Now the bounce has to come from other areas. And this time, even those sectors have been less than gung-ho about hiring.
Still, Rockford has become a case study of how an industrial area can respond to a shifting economic landscape. This city has long been synonymous with manufacturing. It has scores of automobile suppliers, tool-and-die makers, machine-tool producers and small companies that provide contract manufacturing services. The unemployment rate is nearly 11 percent in the city and about 8 percent in the surrounding Rock River Valley, much higher than the national average of 5.9 percent.
But the news is not all bleak. Confronted with the choice between adapting or dying off, Rockford has tried to reinvent itself. "We are in a global economy, and we are in the throes of a major transformation," said Robert Levin, executive director of the Council of 100, a business-promotion group here.
Rockford's sprawling airport, which has almost no passenger traffic, has become a fast-growing cargo handling center. United Parcel Service employs 1,500 people there, making the airport its second-largest hub, after Louisville, Ky. All told, 3,000 people work at the airport, which handled 1.4 billion pounds of freight last year.
Telephone call centers just outside town employ about 5,000 people, mostly part-time workers who earn about $10 an hour. The pay is lower than in most factories, and many people worry that even these jobs will be pulled away to the fast-growing call centers of India or the Philippines. But MCI, the long-distance carrier, has built a center with more than 1,000 workers and is still hiring.
Rockford is also becoming a bedroom community. New housing developments are attracting people from Chicago's western suburbs, about 70 miles away. (The prospect of four-bedroom homes for $169,000 seems to make the commute more tolerable.) Reflecting the influx, Wal-Mart, which already owns one big store outside town, is building two more in the area. Target and Home Depot are each opening a second store in the area as well.
So far, none of this has come close to filling the void left by the loss of manufacturing jobs. The big question is whether the remaining industries also transform themselves or move away entirely. The answer could determine the shape of the economic expansion in the months and years ahead. Though more extreme than in some other parts of the country, Rockford's unemployment problems fit in with a broader national trend. Like their counterparts elsewhere, many executives here are increasingly confident that business is picking up, but they are also reluctant to hire extra workers. Companies are either convinced that they can extract more productivity from the employees they already have or are worried that they will be overstaffed if the expansion turns out to be another false start.
Most evidence suggests that the economy is moving into high gear after one of the feeblest recoveries in history. Economic growth soared at an annual rate of 8.2 percent in the third quarter of 2003, and economists say they think it will climb nearly 4 percent this year.
Business spending, the weakest component of the economy more than a year after the recession officially ended, is now growing rapidly. Orders for new equipment shot up at the fastest pace in 20 years in December, rising for the sixth month in a row, according to a survey by the Institute for Supply Management that was released on Friday. Industrial production jumped 0.9 percent in November, the third increase in a row and the biggest in four years, according to the Federal Reserve. Perhaps most encouraging, the increases were spread across most sectors of industry.
Despite all the good news, employment continues to climb much more slowly than in previous recoveries. Many people took heart when the Labor Department reported that the economy added a total of 236,000 jobs in September and October. But just 57,000 jobs were created in November, and most employers remain cautious about expanding their payrolls.
Given the growth of the working-age population, the nation needs to add around 250,000 jobs a month to achieve a significant decline in unemployment before the November election. Economists are skeptical that job creation will hit that pace, in part because companies of all types have been getting ever more work out of the same number of workers.
Productivity climbed at an annual rate of 9.4 percent in the third quarter of 2003, and it has risen at an annual rate of 5 percent for the last several quarters. If the pace continues at anywhere near that level, the economy would have to grow by far more than 4 percent a year to bring down the jobless rate.
China is the other big factor. Lobbyists for manufacturers attribute many of their woes to that nation, which is running a trade surplus with the United States of roughly $125 billion. But a large percentage of Chinese imports come from subcontractors of American manufacturers, which are themselves trying to take advantage of China's low costs.
Whether jobs are being lost to China or merely to higher productivity, many companies remain nervous about hiring even if business is picking up. "It's busier for us than it has been for the past four years," said Eric Anderberg, general manager of Dial Machine and the son of the founder. "The problem is, there's nothing that gives me the sense of a sustained recovery."
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