With a combined population of about 52.5 million people, the Great Lakes Region remains the economic heartland of the country. The region is comprised of industrial heavyweights Illinois, Indiana, Michigan, Minnesota, Ohio and Wisconsin. The COVID-19 pandemic hit the region especially hard and it may take some of these states several years to fully recover.
As a whole, the Great Lakes Region underperformed the U.S. gross domestic product (GDP) growth rate of 4.3% in fourth-quarter 2020. Annualized GDP growth at this time ranged from 1.7% in Michigan to 5% in Indiana and Ohio. Regional unemployment rates, however, have come down significantly after being at double-digit levels and were approaching pre-pandemic levels this past spring. Wisconsin and Indiana had the lowest unemployment rates in the region at 3.9% in April 2021 while Illinois had the highest at 7.1%.
The Great Lakes states encompass much of the nation’s so-called “Rust Belt,” which experienced a deep decline in steel and heavy manufacturing in the late 1970s and 1980s. Although cities like Detroit have been making an economic comeback, the 10-year population growth in these states has been lower than other regions. Illinois was one of just three states (along with West Virginia and Mississippi) to lose population from 2010 to 2020, posting a negative 0.1% growth rate. Minnesota saw the highest growth rate in the Great Lakes Region during this period at 7.6%, although studies suggest that recent gains came mostly from births outpacing deaths rather than through migration from other states.
Despite their challenges, the Great Lakes states are home to numerous large cities that attract Fortune 500 companies. Chicago, with a metro-area population of 9.4 million, is the third-largest city in the U.S. after New York and Los Angeles. Other major cities include Detroit, Minneapolis, Indianapolis, Milwaukee, and the Ohio cities of Cleveland, Cincinnati and Columbus.
Auto manufacturing and aerospace remain regional economic drivers. Other major industries include carbon fiber, composite materials, biological sciences, chemicals and farm equipment. Despite large urban concentrations, much of the land in the region remains rural and farming is an important industry in each of the Great Lakes states.
Prior to the pandemic, Illinois had growing pension debt and a shrinking tax base. These factors, combined with the state’s spending needs and decreasing tax revenues, will likely make the recovery in the Prairie State more difficult compared to that of its Midwest neighbors, according to Moody’s Analytics. Meanwhile, in terms of pandemic-related implications, Ohio’s economy was the fourth most impacted by COVID-19, according to personal-finance website WalletHub. Wisconsin was another hard-hit state. According to researchers at Harvard University, 30% fewer small businesses were open in the Badger State as of November 2020 compared to the start of last year.
Meanwhile, Michigan Gov. Gretchen Whitmer has rolled out a plan to provide grants to restaurants, other small businesses and high-tech startups. Minnesota was investing $50 million in a forgivable loan program to help struggling businesses in the cultural, entertainment and hospitality industries. â—Ź
Although the Motor City’s economy has picked up in recent years, the pandemic dealt a heavy blow to Detroit’s office market. For the first time in nearly eight years, overall asking rents fell quarter over quarter to $20.80 per square foot in first-quarter 2021, down from $20.88 per square foot in fourth-quarter 2020, according to Cushman & Wakefield.
The vacancy rate has risen steadily since Q1 2020 when COVID-19 first emerged in the U.S. The vacancy rate reached 14.4% in Q1 2021, up by 2.7 percentage points year over year. Detroit’s office market also experienced net negative absorption for four consecutive quarters starting in second-quarter 2020. Net absorption across the metro area declined by some 589,000 square feet in the first three months of this year. Detroit’s central business district has seen the greatest exodus of companies, according to Cushman & Wakefield.
Focus: Agriculture
With so many large cities, it is easy to forget that the Great Lakes Region is a major agricultural center for the U.S. Illinois farmland covers about 27 million acres or 75% of the state’s total area, and the Prairie State is a major producer of soybeans, corn and pigs.
In Indiana, meanwhile, there are roughly 57,000 farming operations. Agriculture contributes about $32 billion to the Hoosier State’s economy and the state’s $4.6 billion in ag exports ranked No. 8 nationally as of 2017. Michigan’s farming sector produces more than $104 billion in economic output each year and employs 805,000 people.
In Minnesota, there are some 40,469 square miles of land devoted to agriculture, which is more than half the state’s land area. Ohio’s 77,000 farms are spread across 13.9 million acres. And Wisconsin is known as “America’s Dairyland” for its milk and cheese production. Agriculture contributes about $105 billion annually to the state economy.
What the locals say
“Amazon is creating their worldwide air-transportation hub at the Cincinnati/ Northern Kentucky International Airport. So, by way of game changers, there’s several billion (dollars) worth of Amazon investment at the airport. A number of major hospital systems are located here and, in higher education, there’s the University of Cincinnati, Northern Kentucky University and University of Miami. Xavier University is here as well. So, from an economy standpoint, we’ve largely reshuffled the deck, so to speak, and have the ultimate sources of industry to help us grow further.”
Mike Ginnever
Principal, BlueMark Capital LLC
3 Cities to Watch
Chicago
From May through August of last year, 4,993 Chicago-area businesses closed temporarily or permanently, according to the crowdsourced business-review platform Yelp. The company also reported that 60% of Chicago-area business closures were permanent, with bars and restaurants accounting for about one-quarter of permanent closings. The construction industry was one bright spot, however, as it was classified by the governor as an essential industry.
Columbus
Columbus is Ohio’s third-largest metro area at 2.2 million and has about 913,000 city residents. The city has been growing steadily and has built a diverse economic base. In March 2021, Columbus had reportedly recovered about two-thirds of the 150,000 jobs that were lost in the early months of the pandemic, and it was faring better than Cleveland and Cincinnati. Columbus is home to the Buckeye State’s fourth-largest employer, Ohio State University.
Indianapolis
Founded in 1822 on the site of a Native American village and hunting grounds, Indianapolis is the capital and largest city in Indiana (2.1 million in the metro area). The city fared reasonably well early in the pandemic, adding 91,300 jobs between May and August of last year. Also, the city’s food and drinking establishments bucked the national trend by adding jobs on a year-over-year basis in August 2020, the only one of the nation’s 50 most populous metros to do so.
Sources: Chicago Tribune; Cushman & Wakefield; Detroit Free Press; Forbes; Forward Analytics; Illinois Department of Agriculture; Indiana State Department of Agriculture; Michigan Department of Agriculture and Rural Development; Ohio Department of Agriculture; Ohio Department of Job and Family Services; Star Tribune; The Brookings Institution; The Center Square; The Cincinnati Enquirer; The Columbus Dispatch; The Detroit News; The Pantagraph; ThinkWhy; U.S. Department of Labor; Trading Economics; WalletHub; WorldAtlas.com; World Population Review; Yelp
