First read on August: Manufacturing strong in U.S., Midwest

  • Article by: DEE DEPASS , Star Tribune
  • Updated: September 2, 2014 - 11:32 PM

Minnesota’s manufacturers reached 21 straight months of growth, Creighton’s survey of the Midwest found.

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The slowdown in the farm economy is just starting to show up in the broader manufacturing conditions of the Midwest.

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U.S. manufacturers boasted strong growth in August amid new orders and exports, according to two economic reports issued Tuesday.

At the same time, delays in railroad shipments and the effect of lower commodity prices on America’s farmers also showed up in the manufacturing data.

U.S. factories reported growth for a 15th consecutive month and posted an index of 59 in August. That’s the highest reading in three years and up from 57.1 in July, according to the Institute for Supply Management (ISM).

For the central part of the country, the Mid-America Business Conditions Index by Creighton University grew to 57.2 in August from 57 in July. Any index above 50 signals economic growth, while any figure below 50 signals that the economy is losing ground.

Minnesota posted its 21st consecutive month of growth in August as new orders, production and deliveries all improved to produce an index of 66.9, up from 66.4 in July.

Last month, Duluth based Cirrus Aircraft expanded into India, while the Bloomington-based filtration giant Donaldson Co. announced an acquisition that will help it expand turbine products in the Middle East. At the same time, Minneapolis-based Valspar said paint and coating sales were so strong that it was boosting its earnings guidance for the entire year.

“Indices over the past several months are pointing to solid, but not spectacular, economic gains over the next three to six months” in the nine Midwest states covered by Creighton’s survey, said Ernie Goss, director of the Omaha university’s economic forecasting unit.

The region’s success comes despite complaints from surveyed supply managers who said that rail shipments “had become particularly problematic” during the month as oil and housing product shipments gobbled up rail capacity. The month’s economic uptick also overcame a blow to employment.

While four in 10 businesses reported job openings that exceeded applicants, the region’s overall employment index fell to 48.7 as the ag sector lost jobs. It was the first time this year that the index dropped below 50.

Two weeks ago, farm equipment maker John Deere & Co. announced it would lay off 600 workers as demand for its products lagged. The AGCO tractor maker in Jackson, Minn. had been on a hiring tear for two years as it expanded factories in Minnesota and Kansas. But hiring has largely stalled in the last six months.

The farm equipment sector saw significant growth last year, but that activity waned this year amid sharply lower prices for corn and soybeans. Still, lagging farm machinery sales and employment did not put much of a dent in the nation’s manufacturing activity.

The ISM reported that 17 of 18 manufacturing industries reported growth in August as new orders registered the highest levels reported since 2004. The biggest gains were in plastics and rubber items, furniture and metal goods.

The report is “indicating continued expansion in manufacturing. This month the [index of 59] reflects the highest reading since March 2011,” said Bradley Holcomb, chairman of the ISM’s manufacturing business survey committee.

Nationwide, factories experienced not only a surge in new orders but also realized significant production gains in August. On the employment front, however, hiring continued for a 14th month but at a slower rate. The U.S. employment index was 58.1, down from July’s 58.2 index.

That blip did not discourage analysts. “August was exceptionally strong,” said Dan Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI). “An index of 59 is noteworthy … Only 5 percent of the time in the last 25 years has the index been at or above 59.”

Todd Hedtke, vice president of Allianz Investment Management in Golden Valley, said “We were always in the camp that thought the economy was quite strong, even in the early part of the year when we were having weather problems. Now the numbers have started to heat up a little bit more than even we expected.”

Tuesday’s reports track with other rosy economic data, Hedtke said, noting last week’s upward revision of second quarter GDP growth to 4.2 percent and an upbeat consumer sentiment report from the University of Michigan.

“And now you have the manufacturing report,” Hedtke said. “There is a real story there for August. Overall the broad numbers were huge.”

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