Midwest economy is rebounding. Basic industries are coming back slowly as service sector expands

For Jim Marrero, a northwestern Indiana steelworker, times are getting better. ``I just got called back two weeks ago,'' says Mr. Marrero, an Inland Steel employee laid off since 1985. ``I can't wait to get off food stamps.''

Times have also improved for Katherine Hays. Two years ago she was thrown out of work when a Chicago toy factory closed down. Now she works at a factory across the street. ``For the time being, [it's] pretty good,'' says her husband, Lawrence.

From Akron, Ohio, to Omaha, Neb., from St. Louis to St. Paul, Minn. - the Midwestern economy is showing signs of moving out of the slump of the early 1980s. (White House shifts trade tactics: Page 3.)

``We're not at the peak, but we're out of the valley,'' says Charles Bartsch, senior policy analyst at the Northeast-Midwest Institute.

Adds Tim Smith of the Federal Reserve Bank of Kansas City: ``We're on a long road to recovery.''

What's happening in this large and diverse region is a dramatic restructuring. Like the rest of the United States, the Midwest has experienced growth in service industries throughout the 1980s.

But that improvement has been offset by a deep slump in the region's core industries, such as steel and automobiles. Now, these basic industries are turning their situation around.

``There are signs that many manufacturers are responding very actively,'' says Jerry Sheehan, vice-president of area development with AmeriTrust Company in Cleveland. ``I'm optimistic that we're through the worst of the restructuring.''

Here in Chicago, for example, Inland Steel felt the squeeze of growing steel imports and shrinking demand. So three years ago it began revamping itself, closing inefficient operations, cutting its management group by one-fifth, selling off several nonsteel subsidiaries, and buying a steel service center.

Moves such as these by manufacturers are just beginning to bear fruit. A survey by Crain's Chicago Business found that profits of 85 Chicago corporations jumped an average 30 percent during the second quarter over the same period a year ago, the biggest gain since 1984.

The recent fall in the value of the dollar will further fuel recovery, economists say.

``We are going to make considerable improvement [in exports],'' says Robert Dederick, chief economist at Northern Trust Company in Chicago. ``The `rust belt' is regaining some of its glow.''

Some areas are glowing brighter than others. The industrial Great Lakes states seem poised for stronger growth than the more farm-dependent Great Plains.

That's because agriculture is not likely to rebound soon, economists say.

Even in the Great Lakes, the potential for growth varies by industry. Automobile analysts, for example, are wary.

``We're in a recovery - fully entrenched in a recovery - with a wide range of opportunities,'' says Thomas O'Grady, president of Integrated Automotive Resources Inc., outside Philadelphia. But, he says, ``there's a tremendous number of risks at the same time.''

Foreign competitors will capture a growing share of the compact-car market, predicts Ted Sullivan, director of automotive consulting at Wharton Econometrics.

Even the fall in the dollar's value - down by nearly 30 percent since 1985 on a trade-weighted basis - merely gives US automakers some breathing space to make improvements, he adds.

Foreign competition is here to stay, putting special pressure on US auto-parts suppliers.

Many analysts doubt the current restructuring is enough to allow the Midwest to grow faster than the rest of the US.

Since 1978, neither the Great Lakes nor the Great Plains states have kept up with the national surge in employment.

``We've got to continue to run at a faster pace to close the gap,'' says David Allardice, assistant research director at the Federal Reserve Bank of Chicago.

On the other hand, Midwestern hopes are running high for the first time in a long time.

``I'm much more optimistic about the region than I was five years ago,'' says Fred Bateman, an Indiana University professor of business economics, who foresees a service-based Midwest.

As it did a century ago, when it moved from a farm-based to an industrial-based economy, the region is negotiating the rocky road to a new kind of economy, Professor Bateman adds.