With the incredible bout of bad economic luck the Great Lakes region has experienced over the past several years, logic dictates that the area needs nothing short of a miracle to make any sort of meaningful turnaround. Yet some analysts believe that turnaround is already taking place, thanks to the sector that made it plummet to begin with: manufacturing.

Hard to believe, perhaps, but manufacturing “has helped some parts of the great Lakes states as a cheap U.S. dollar beefs up demand for machinery,” Reuters is reporting.

Auto industry-dependent Michigan has seen more than its fair share of economic decline due to layoffs by United States automakers struggling to remain competitive.

“On the other hand,” according to one Standard & Poor’s Ratings Services analyst, “demand for machinery from China and India, fueled by a cheaper dollar, has boosted areas such as Peoria, Illinois, home to Caterpillar Inc. and Moline, Illinois, with its Deere & Co. manufacturing,” Reuters reports Standard & Poor’s John Kenward as having told an Information Management Network-sponsored Great Lakes Public Finance Conference last week.

One analyst, at Moody’s Investors Service, says some Great Lakes states carry healthy fund balances and have conservative fiscal management — positive credit factors that should enable them to weather a housing slump.

Yet both a cheaper dollar and the ability to bounce back from a housing slump apparently come with their own hidden costs, according to the 2008 Grant Thornton LLP Great Lakes Manufacturing Report, which was developed using data from the IndustryWeek/Manufacturing Performance Institute 2007 Census of Manufacturers.

Here’s how IndustryWeek and Grant Thornton break down the report’s recent findings:

• Though manufacturing companies in the Great Lakes region have seen a slight increase in their overseas sales, production costs continue to rise faster, leading to price increases;

• Seven in ten manufacturers in the Great Lakes region report increasing their prices in the past year, with the vast majority of those (87 percent) increasing prices from 1 percent to 10 percent over last year; and

• Although overseas sales in the Great Lakes region have increased slightly in the last three years to 2.5 percent of sales volume, manufacturers in the rest of the country have seen overseas sales increase to 5.5 percent — and only Illinois plants report over 5 percent of their sales coming from overseas (14 percent).

“There are few production costs that haven’t risen in recent years,” Michael Capone, the Midwest region leader of Grant Thornton LLP’s consumer and industrial products industry group, said in a statement. “While that may not be news, the size and impact of these cost increases are staggering.”

Cost increases aren’t the only obstacle preventing the Great Lakes region from rebounding. In typical fashion, politics might be the culprit that is holding the region back from experiencing the rebound it so desperately needs, suggests a sobering “Letter to the Editor” recently published in the Detroit Free Press:

Earlier this year, state legislators and the governor came together in a bipartisan manner with the goal of raising our state’s profile in the national arena, encouraging participation in the election process and making sure the next president of the United States is keenly aware of the issues Michigan is facing. At that time, it seemed everyone recognized the importance of having our next chief executive share our concerns about the state of the manufacturing economy, protecting the Great Lakes, and helping farmers thrive.

And here is why Michigan residents may not get it, according to the state senator who submitted the opinion piece:

After an Ingham County Circuit Court judge struck down Michigan’s primary because of concerns over the handling of voter ID lists, Senate Republicans acted quickly to correct the law so the primary could go forward. Unfortunately, [Senate Minority Leader Mark Schauer, a Democrat] and his caucus used a procedural vote to block the measure. Barring a judicial miracle, they effectively killed Michigan’s early primary and shut out millions of residents who would have had the chance to make their voices heard in January.

This raises the question: Are politics holding back Michigan and other Great Lake states from realizing a manufacturing comeback?

Resources

Manufacturing Seen Boon, Bane to Great Lakes States
Reuters, Nov. 15, 2007

Higher Product Costs Lead to Price Increases for Great Lakes Manufacturing
by Adrienne Selko
IndustryWeek, Nov. 14, 2007

Great Lakes Manufacturing Report: 70% of Plants Increased Pricing
Grant Thornton LLP, No. 12, 2007

Letters to the Editor: Dems Shut Out State Voters
by Michelle McManus (State senator, 35th District)
Detroit Free Press, Nov. 16, 2007