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ESSAYS ON ISSUES

THE FEDERAL RESERVE BANK
OF CHICAGO

OCTOBER 1995
NUMBER 98

Chicago Fed Letter
Midwest manufacturing
exports: Who buys?
What sells?

com pared to a 116% increase for
the U.S. Nearly two-thirds of all
Midwest m anufacturing exports are
concentrated in three industries—
machinery, both electrical and non­
Exports have been responsible for a
electrical,
and transportation equip­
large share of the growth in gross
ment.
The
individual states of the
domestic product (GDP) over the last Midwest extend
this mix somewhat.
decade. Between 1987 and 1995,
Illinois
and
Indiana
both have large
exports as a share of total GDP rose
chemical
exports;
Iowa
has large
from about 8% to more than 13%.
processed-food
exports;
and measur­
Moreover, exports play an im portant
ing
instruments
are
Wisconsin’s
role in sustaining not only manufac­
export industry. The
turing jobs, but also jobs that support third-largest
top
export
destinations
Midwest
manufacturing, such as services, trans­ m anufacturing goods areforCanada,
portation, and shipping. According
Japan, and Mexico (see figure 1).
to government reports, in 1992, 10.5
million U.S. jobs (approximately one- M anufacturing exports’ share of total
tenth of all nonfarm jobs) were sup­
m anufacturing output (gross state
ported by exports—7 million by mer­ product, or GSP) in the Midwest rose
chandise exports and 3.4 million by
from 22% in 1987 to 29% in 1992.
services exports.
The com parable figures for the U.S.
were
and 38%. Thus the re­
From a policy perspective, particular­ gion’s25%
m
anufacturing
is not as export­
ly at the state level, it is im portant
intensive
as
the
nation’s.
Among
to know the role exports play in a
midwestern
states,
only
M
ichigan’s
state’s or region’s economy. It is
m
anufacturing
is
more
export-inten­
especially useful to know which types sive than the nation’s, with a 39%
of goods are in high dem and world­
wide and which regions of the world share of output in 1992.
are dem anding them. With this in­
W hen one calculates this share at the
form ation, state and federal export
industry level, the Midwest lags the
prom otion efforts have a better
U.S. in most industries. However, the
chance of succeeding.
individual states tend to be dom inat­
ed by two or three industries, and
This Chicago Fed Letter looks at the
these industries tend to be m ore ex­
midwestern states of Illinois, Indiana, port-intensive
at the state level than
Iowa, Michigan, and Wisconsin and
they
are
nationally.
For example,
examines the types of goods these
Illinois’s
top
export
industries
are
states export as well as their major
m
achinery
and
transportation
equip­
destinations. Although services ex­
ment. These industries are more
ports are an im portant and growing
export-intensive
in Illinois than na­
part of the U.S. economy, data on
tionwide.
Following
is a state-by-state
services exports at the state or re­
analysis
of
Midwest
exports
over the
gional level are unavailable. There­
1987-94
period.
fore, this article will discuss only
m anufacturing exports.
Illinois

Export intensity in the Midwest

Over the 1987-94 period, Midwest
m anufacturing exports grew 96%

Over half of Illinois’s m anufacturing
exports is concentrated in three in­
dustries: electrical machinery, non­

1. Top export destinations, 1994
Value

Percent

($ billions)
Canada

33.6

48.3

Ja p a n

4.5

6.5

M e xico

4.1

5.9

U n ite d K in g d o m

3.1

G e rm a n y
T otal M id w e s t
exports

4.4

2.6

3.8

69.5

100.0

electrical machinery, and chemicals.
This is not surprising, since Illinois
is hom e to num erous large capital
goods producers, consum er appli­
ance companies, electronics and
telecom m unications manufacturers,
and pharm aceutical companies.
Canada is the largest export destina­
tion for Illinois goods, as it is for total
U.S. goods and the goods of each of
the other Midwest states. Canada
received nearly a third of the state’s
exports in 1994.
While Canada garnered the largest
share of Illinois’s exports, the state’s
exports to China and Mexico grew
m ore rapidly over the 1987-94 peri­
od. Half of Illinois’s exports to Chi­
na in 1994 was electrical m achinery,
primarily com puters and telecom ­
m unications equipm ent, accounting
for 40% of all U.S. electrical ma­
chinery exports to China. About
70% of C hina’s com puter im ports
are from the U.S.1 Telecom m unica­
tions equipm ent, which includes
cable TV, paging, cellular, and net­
work com puter equipm ent, is a
high-priority sector for developm ent
in China, which is good news for
Illinois’s exports.
A nother Illinois growth export indus­
try to China was chemicals, with most
of the increase occurring in 1993-94.

Illinois’s chemical exports to China
accounted for 13% of all U.S. chem i­
cal exports to China in 1994. Quick
surges such as this are sometimes
only temporary, reflecting a tem po­
rary need or favorable exchange rate.
This surge may be m ore durable,
however, as the U.S. has worked ex­
tensively over the last few years to
persuade China to open its doors to
more U.S. goods.
Almost all Illinois industries saw
exports to Mexico grow significantly
over the 1987-94 period, with non­
electrical m achinery, electrical ma­
chinery, and processed foods experi­
encing the largest dollar increases.
Mexico has accom plished significant
econom ic developm ent over the last
decade, partly the result of a m ore
open trade policy. A growing econ­
omy typically needs certain types of
goods to support growth—goods to
build an infrastructure (such as
roads or com m unications), industri­
al equipm ent, and eventually, con­
sum er goods. Illinois, like most
midwestern states, has already bene­
fited from increased trade with Mex­
ico in ju st those goods. However,
the devaluation of the peso in late
1994 and M exico’s sharp econom ic
dow nturn in 1995 have upset this
trend considerably. The U.S.’s ex­
ports to Mexico will likely take a
beating this year.
Indiana

Indiana’s m anufacturing exports
increased 121% over the 1987-94
period. The state is hom e to many
large auto parts suppliers, pharm a­
ceutical m anufacturers, and industri­
al machinery manufacturers; its larg­
est export industries in 1994 were
transportation equipm ent, nonelec­
trical machinery, and chemicals. In
the same year, Indiana’s top export
destinations were Canada, Japan, and
the United Kingdom. M anufactur­
ing exports to Canada accounted for
nearly half of the state’s total exports.
O f the top destinations for Indiana’s
exports, Belgium and Germany real­
ized the largest percentage gains
over the 1987-94 period. The state’s
m anufacturing exports to Belgium

increased 321%, with transportation
equipm ent accounting for nearly
two-thirds of that growth. Indiana’s
transportation equipm ent exports to
Belgium grew from $2 million in
1987 to $95 million in 1994; the lat­
ter figure represented 10% of all U.S.
transportation equipm ent exports to
Belgium that year.
Indiana’s leading export to Germ a­
ny in 1994 was chemicals, account­
ing for nearly a third of the state’s
exports to Germany in that year.
In the previous year, the U.S.
ranked fourth am ong Germ any’s
leading chemical suppliers, with
almost 10% of its im port market.
Industrial chemicals as well as drugs
and pharm aceuticals are considered
good prospects for increased ex­
ports to Germany.
Iow a

Iowa’s m anufacturing exports to
Australia increased from $32 million
in 1987 to $106 million in 1994.
About 60% of the state’s exports to
Australia are nonelectrical m achin­
ery, probably farm equipm ent, since
agriculture plays an im portant role in
Australia’s economy. Despite several
years of drought, Australia continues
to be a growth m arket for U.S. farm
equipm ent exports, which now make
up about 50% of Australia’s total
imports in this category.
M ichigan

In 1994, M ichigan’s m anufacturing
exports accounted for 40% of the
Midwest’s m anufacturing exports,
yet they contributed only 30% of
the region’s export increase over the
1987-94 period. This is not surprising,
since Michigan’s manufacturing ex­
ports grew only 57% over the entire
period. Why the lackluster perfor­
m ance com pared to the other Mid­
west states? As figure 2 shows, Michi­
gan’s economy is no longer so heavily
dependent on the auto industry. Nev­
ertheless, transportation equipm ent
is still the largest export industry of
the state; it accounted for 55% of all
m anufacturing exports and 30% of
m anufacturing em ploym ent in 1994.
Yet transportation equipm ent ex­
ports grew only 27% over the 1987-94
period, largely because of slow ex­
port growth to the state’s largest

Over the 1987-94 period, Iowa’s
m anufacturing exports increased
91%. Since Iowa is hom e to several
large farm equipm ent and industrial
equipm ent m anufacturers, it stands
to reason that nonelectrical m achin­
ery m ade up one-third of the state’s
m anufacturing exports in 1994. Pro­
cessed foods and electrical m achin­
ery were the second- and third-largest export industries, respectively.
Canada accounted for over one-third
of Iowa’s total m anufacturing exports
in 1994. However,
between 1987 and
2. Industry share of total GSP/GDP
1994, South Korea and
Australia experienced
Michigan
U.S.
faster rates of growth as
1977
1992
1977
1992
markets for the state’s
(-------------------- percent------------------ )
exports. Iowa’s m anu­
T o ta l GSP/GDP
100.0 100.0
100.0 100.0
facturing exports to
27.2
17.7
23.9
M a n u fa c tu rin g
40.1
South Korea increased
19.0
10.1
1.9
0.9
M o to r v e h ic le s
m ore than 400%, with
T ra n s p o rta tio n
9.2
8.8
7.1
6.8
processed foods ac­
counting for over half
5.5
6.6
7.1
6.6
W h o le s a le tra d e
of the state’s exports in
9.7
9.3
Retail tra d e
9.1
9.3
1994. As a large and
12.1 16.5
14.5
18.5
FIRE3
growing m arket for
19.7
17.7
13.1
S e rvice s
10.9
U.S. goods, South Ko­
Note: Columns w ill not total 100.0% because some
rea was the U.S.’s sixthcategories are not listed.
largest export m arket
fin a n c ia l services, insurance, and real estate.
in that year, supplying
Source: U.S. Department of Commerce, Gross State Product,
about 23% of the coun­
1977-92, CD-ROM, 1995.
try’s total imports.

markets, Canada and Mexico. Ex­
cluding transportation exports, Mich­
igan’s rem aining m anufacturing
industries increased their exports
120% over the period.
While M ichigan’s total m anufactur­
ing exports to Canada increased
only 49% and those to Mexico in­
creased only 41% over the period,
several of the state’s industries expe­
rienced significant export growth to
those countries, including both of
the m achinery industries. Exclud­
ing transportation equipm ent, Mich­
igan’s total m anufacturing exports
to Mexico tripled over the period.
Trade with M ichigan’s other large
partners in 1994 was more positive.
In particular, Austria (a relatively
new trade partner for Michigan) and
France (a longstanding partner)
experienced the largest percentage
increases as M ichigan’s major trade
partners over the period. The state’s
exports to Austria consisted almost
exclusively of transportation equip­
ment. Most of the U.S.’s transporta­
tion equipm ent trade with Austria is
in auto parts. Trade in autos is mini­
mal. M ichigan’s transportation
equipm ent exports to Austria ac­
counted for 80% of all U.S. transpor­
tation equipm ent exports to that
country in 1994.
M ichigan’s largest export industry to
France in 1994 was chemicals, ac­
counting for nearly half of the
state’s increased trade with that
country over the 1987-94 period.
M ichigan’s chem ical exports to
France com prised 11% of all U.S.
chemical exports to France in 1994.
Chemicals are one of the U.S.’s best
prospects for trade with France,
particularly industrial chemicals and
pharm aceuticals, two subindustries
in which M ichigan has several large
m anufacturers.
Wisconsin

Over the 1987-94 period, Wisconsin’s
m anufacturing exports increased
132%, the second-highest growth rate
of the Midwest states. Nonelectrical
machinery, transportation equipment,
and measuring instrum ents were the

are our traditional partners such as
state’s largest export industries in
Canada, Japan, and Europe, or
1994. Measuring instrum ents ex­
ports have been a growth m arket for em erging markets such as South
Wisconsin, increasing at least sixfold Korea and China.
over the period. Wisconsin is hom e
The Midwest has a large and diverse
to several large and medium-sized
anufacturing base, and many of its
measuring and test instrum ents m an­ m
products
are of the types that grow­
ufacturers as well as medical instru­
ing
economies
need in order to de­
ments manufacturers. Much of the
velop:
farm
equipm
ent, construction
increased trade in this industry can
equipm
ent,
and
telecom
m unications
be attributed to increased sales to
equipm
ent,
as
well
as
a
broad
range
France and Japan.
of industrial equipm ent. Demand
for consum er goods such as house­
Wisconsin’s largest export destina­
hold appliances or prepared foods
tions in 1994 were Canada, Japan,
also increases as countries develop.
and the U nited Kingdom. Saudi
This bodes well for the Midwest,
Arabia was the state’s largest export
since it means that m anufacturing
growth market, rising from $36 mil­
lion in 1987 to $346 million in 1994, exports are likely to continue playing
an im portant role in the region’s
almost entirely as a result of in­
creased exports in the transportation economies.
equipm ent industry. W isconsin’s
—Linda M. Aguilar
exports from that industry to Saudi
Regional
Economist
Arabia accounted for 13% of all U.S.
transportation equipm ent exports to
the country in 1994. Saudi Arabia is JU.S. Department of Commerce, Interna­
the fifth-largest world m arket for
tional Trade Administration, China: Data
auto parts, primarily because its used- on Best Prospects, CD-ROM, 1995. All
subsequent references to export pros­
vehicle m arket is sizable. In total,
the U.S. supplies about 40% of Saudi pects for various countries are from this
series of sources, with the same citation
Arabia’s auto parts market.
but a different country name (Germany,
Mexico was another growth market
France, Saudi Arabia, and Mexico).
for W isconsin’s goods, increasing
from $69 million in 1987 to $397
million in 1994. Com pared with
exports to Saudi Arabia, the growth
in Wisconsin’s exports to Mexico was
m ore evenly spread across all indus­
Michael H. Moskow, President; William C.
Hunter, Senior Vice President and Director of
tries, with nonelectrical equipm ent
Research; David R. Allardice, Senior Vice President,
seeing the largest dollar value in­
regional programs; Douglas Evanoff, Assistant
crease. O ther growth industries to
Vice President, financial studies; Charles Evans
Mexico were electrical machinery,
and Kenneth Kuttner, Assistant Vice Presidents,
processed foods, and chemicals. The macroeconomic policy research; Daniel Sullivan,
Vice President, microeconomic policy
U.S. Commerce D epartm ent reports Assistant
research; Anne Weaver, Manager, administration;
that the best prospects for trade with Janice
Weiss, Editor.
Mexico in nonelectrical equipm ent
Chicago
Fed Letter is published monthly by the
are in pollution control equipm ent,
Research Department of the Federal Reserve
air conditioning and refrigeration,
Bank of Chicago. The views expressed are the
and m achine tools—industries in
authors’ and are not necessarily those of the
Federal Reserve Bank of Chicago or the
which Wisconsin has several large
Federal Reserve System. Articles may be
m anufacturers.
reprinted if the source is credited and the

Summary

Recent Midwest export data show
that the region has responded to
the w orld’s increased dem and for
U.S. goods, w hether those m arkets

Research Department is provided with copies
of the reprints.
Chicago Fed Letter is available without charge
from the Public Information Center, Federal
Reserve Bank of Chicago, P.O. Box 834,
Chicago, Illinois, 60690-0834, (312) 322-5111.
ISSN 0895-0164

Purchasing m anagers’ surveys indicate that Midwest m anufacturing activity
flattened out in recent m onths, after decelerating significantly in the second
quarter. The com posite production com ponent of surveys in Chicago,
Detroit, and Milwaukee rose in August, but rem ained at a level consistent
with only m odest growth in output in the region. Extended hot, hum id
w eather cut into production hours in August, but stronger retail sales and
housing activity should help prom pt rising m anufacturing output in the
m onths ahead.

Sources: The Midwest Manufacturing Index (MMI)
is a composite index of 15 industries, based on
monthly hours worked and kilowatt hours. IP rep­
resents the Federal Reserve Board industrial pro­
duction index for the U.S. manufacturing sector.
Autos and light trucks are measured in annualized
units, using seasonal adjustments developed by the
Board. The purchasing managers’ survey data
for the Midwest are weighted averages of the sea­
sonally adjusted production components from the
Chicago, Detroit, and Milwaukee Purchasing Man­
agers’ Association surveys, with assistance from
Bishop Associates, Comerica, and the University of
Wisconsin-Milwaukee.

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