A new report by the Brookings Institution shows signs of a slowdown in the auto industry that will likely resound throughout the manufacturing economy. And a map included in the report identifies Northeast Ohio as among the areas that will be hurt.
Mark Muro, a senior fellow at Brookings, says after seven years of growth, the auto industry is undeniably plateauing. Car buyers have caught up with purchases they delayed during the recession. Low gas prices have hurt sales for cars like the Chevy Cruze, made in Lordstown. Auto manufacturers are focusing research dollars on driverless cars. And the auto industry always has been cyclical.
So, in many ways, “This is routine, but that doesn’t make it any more comfortable for places that rely on the enormous auto sector for good jobs at all different levels of training.”
Did autos' strength disguise manufacturing's weakness?
Muro says a broader concern may be that the industry plays an outsized role in manufacturing overall. During the last 15 to 18 months, 60 to 80 percent of job gains have been related to automotive.
“Because this sector has done well for nearly a decade, it maybe obscured slowness in the rest of manufacturing.”
For all the talk about diversifying U.S. manufacturing, Muro says, “Auto is rightly viewed as a bellwether industry. … It’s not only important, it’s been in many respects the best game in town for employment in manufacturing.”
'Because this sector has done well for nearly a decade, it maybe obscured slowness in the rest of manufacturing.'
He says the industry is in better shape than it was when the Great Recession hit and insists he’s not pessimistic about auto. “But it is a cyclical affair, and we are really relying on it heavily for manufacturing and employment.”
The impact on Trump country
The Brookings research includes a map that shows trends up and down in employment in the sector. Many of the dots that show signs of slowdown – like northeast Ohio – were also areas that went heavily for President Donald Trump in last year’s election.”
'Those places have inordinately benefited from a good decade and now are exposed.'
“Trump spoke powerfully to current and displaced manufacturing workers. And it happens that many, many manufacturing workers and displaced manufacturing workers have been associated with the auto industry. So it’s a geography that sweeps from the northern Midwest, down I-65 and into the south. And those places have inordinately benefited from a good decade and now are exposed.”
“A lot of promises have been made that I’m afraid may be unsustainable.”
What's this do for GDP
Among them is projections by President Trump’s budget director, Mick Mulvaney, for 3 percent growth in GDP
“There are lots of reasons … why that is likely unrealistic.” Muro says that includes skepticism about “the promises to grow or return to the U.S. millions of jobs (when) at this point the single biggest driver of U.S. manufacturing is plateauing and in danger of going negative in terms of new employment.
“And meanwhile, there are bigger issues than just the cycle: Automation and productivity.”
Part of the reason the auto industry is so productive these days, he says is that it’s supplanting more human labor “by using more robots than the past.”
Can the chemical industry step in?
'There are bigger issues than just the cycle: Automation and productivity.'
Muro says the best hope to offset a softening of auto may be the chemical industry.
“Your region knows better than others that we have had a massive shale gas boom, which has produced a glut of natural gas” that is a plentiful and cheap raw material for chemical production.
“There have been a spate of bit announcements of investment of new chemical plants, plastic plants.” And while they’re efficient when it comes to labor costs, too, the industry does “promise some compensatory growth. “
And there are side benefits, Muro says. A resumption of oil and gas drilling would also bring increased demand for another Ohio legacy industry, steel pipe. But he does not expect that to reach the fever pitch of five years ago.
