A hard-hit manufacturing industry looks forward in Minnesota

  • Article by: LIZ FEDOR , Star Tribune
  • Updated: June 13, 2009 - 10:09 PM

Minnesota manufacturers want more educated workers to fuel their growth when the economy recovers.

As the financial meltdown spread across the globe last fall, some customers called Minnesota manufacturers to simply cancel their orders.

"It was like somebody just turned the water off," recalls Bill Blazar of the Minnesota Chamber of Commerce. "Now we've got a trickle going again, especially among our small and medium-sized manufacturers."

Job losses this recession have touched virtually every industry in Minnesota, but nearly one out of three jobs cut has come out of manufacturing companies.

Employment in Minnesota's manufacturing sector fell by 9.2 percent, or 30,800 jobs, for the 12 months ending in April, according to the state's Department of Employment and Economic Development (DEED).

Only the professional and business services category suffered a steeper decline, losing 33,500 jobs over the same period.

At this stage, it's unclear how many of those jobs will be restored and when many manufacturers will be able to call people back to work or make new hires.

Dan McElroy, DEED commissioner, said Minnesota's manufacturing sector resembles more of a "cluster of industries or a mosaic" and the economic recovery will unfold quite differently among those businesses.

Some companies that make medical devices already are growing, and food companies are "reporting some improvement," McElroy said. But companies that manufacture boats, recreational vehicles and housing-related products are still struggling.

Chris Twomey, CEO of Plymouth-based Arctic Cat, a snowmobile and all-terrain-vehicle maker, employs about 1,200 people in Minnesota.

"Spending on recreational consumer products like we have will be the last part of the recovery," Twomey said. He expects recreational vehicle sales to rebound in the middle of 2010.

"Retail sales of snowmobiles grew through the '91 and '01 recessions," Twomey said. "This recession is far deeper and much longer than either of those recessions."

The jobs pie

Even as companies move manufacturing jobs overseas to save money, Minnesota has weathered that storm relatively well. The state increased manufacturing employment throughout the 1990s, even as it was beginning to contract nationally. Manufacturing employment peaked in the state at nearly 400,000 jobs in 1998. It has fallen about 16 percent since then, to 335,000 jobs last year.

Its share of the state's jobs pie has also deteriorated. It accounted for 15.5 percent of Minnesota's nonfarm employment in 1998, but fell to 12 percent by last year.

Manufacturing has become a smaller part of the state's job base because manufacturers have "become dramatically more competitive and dramatically more productive," McElroy said.

Dave Fiedler, president of the Minnesota Precision Manufacturing Association and a 37-year veteran of the manufacturing industry, said manufacturers have increasingly replaced people with sophisticated computers and other equipment.

Indeed, the number of manufacturing worksites in the state continues to rise, hitting 9,300 last year.

There's a reason economists often focus on manufacturing jobs. For decades, manufacturing jobs paid more than work in other industries, and the disparity continues. In 2008, the average weekly wage at the state's manufacturers was $1,022, compared with $881 a week for all Minnesota industries.

Instead of trying to be the lowest-cost producer of a basic product, such as screws, many Minnesota companies are making parts and products that require more design and engineering, said Blazar, the chamber's senior vice president of public affairs and business development.

"Our claim to fame with respect to manufacturing is our ability to be innovative and creative," he said. But he acknowledges that manufacturing is an intensely competitive industry because "there are smart people all over the world" and Minnesota companies have to find niches where they can survive and make a profit.

There has been a more-pronounced erosion in manufacturing jobs in the United States. About 17.7 million people were employed in the manufacturing sector in 1990; that number dropped to about 13.4 million by last year. About 9.8 percent of American workers held manufacturing jobs last year, and layoffs in manufacturing have continued this year as the U.S. unemployment rate has continued to climb.

Losing the computer industry

Fred Zimmerman, a retired University of St. Thomas professor, said that Minnesota's manufacturing base could be larger and more diversified if the state had had better government and corporate leadership.

"We suffered greatly with the demise of the computer industry," said Zimmerman, who worked for Control Data for eight years. "In the 1960s, Control Data was well run and Minnesota was the epicenter of computer technology."

He said today's leaders must focus on the fact that "Minnesota is a high-cost state" and its regulatory system for business can be inefficient.

Zimmerman, Fiedler and Blazar all said they are worried that Minnesota won't have enough engineers and other qualified workers to fill manufacturing jobs as Minnesota's economy recovers.

"We have to look realistically at the quality of our education," Zimmerman said. "On a world scale, it's below average." He suggested that gubernatorial candidates should be thinking through what state government can do to create a better business climate for manufacturing, which includes better-educated students.

"In the Czech Republic, they learn four languages plus differential equations in high school," Zimmerman said. "In Minnesota, there is rampant concern that the mathematics test to qualify for high school graduation was so difficult."

Once the global economy recovers, manufacturers could restore some Minnesota jobs overseas.

Arctic Cat's Twomey said executives weigh many factors when deciding where to locate work. He buys snowmobile engines from Suzuki that are made in Japan, but two years ago he decided to start manufacturing ATV engines at a new Arctic Cat plant in St. Cloud.

"I wasn't looking to make engines. It's a fairly high level of skill required," Twomey said, but Suzuki was reluctant to do the customization he wanted. By building Arctic Cat engines close to home, he said, he doesn't have to spend the time and money transporting them back to the United States for assembly, and he can adjust his production plans more rapidly.

At Fiedler's Checker Machine in New Hope, workers make parts for original equipment manufacturers. Other companies in the precision manufacturing association perform that same role. "We are not going anywhere," Fiedler said. "We will hire back in the state of Minnesota."

Liz Fedor • 612-673-7709

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