Factories start to hum

The U.S. manufacturing growth rate jumped in October to its highest pace in three years and Minnesota factories likewise expanded during the month, outpacing neighbors across the Midwest, according to two closely watched surveys released Monday from the nation's top suppliers and Creighton University.

The Institute for Supply Management (ISM) reported that its nationwide manufacturing activity index rose to 55.7 in October from 52.6 in September, the biggest jump since early 2006.

Meanwhile Creighton University's Mid America Business Conditions Index for Minnesota rose slightly from 55.4 in September to 55.9 in October with help from a new-orders index of 64.9 and a sales index of 60.9. As a result, Minnesota's manufacturing sector "continues to point to improving economic conditions in the months ahead" despite employment trends that continued to lag, the report said.

For both indexes, numbers above 50 indicate economic growth while numbers below 50 signal contraction.

National manufacturing activity expanded for the third consecutive month while the overall economy grew for the sixth straight month, according to the ISM report.

"The jump in the index was driven by production and employment, with both registering significant gains," said Norbert Ore, chairman of the ISM's manufacturing business survey. "Production appears to be benefiting from the continuing strength in new orders, while the improvement in employment is due to some callbacks and opportunities for temporary workers. Overall, it appears that inventories are balanced and that manufacturing is in a sustainable recovery mode."

For October, Minnesota supply managers reported growth in delivery lead times and a slight growth in inventories, according to the Creighton survey. Many factories strived over the last two years to slow production, cut costs and lower inventories as a result of slowed consumer spending and reduced orders from around the globe. But economists noted that many inventory levels are now too low, forcing factory owners to crank up production.

Minnesota's employment index only reached 42.2 for the month and the state has lost 4.8 percent of its jobs since December 2007. The state continues to see more job cuts than hires, said Ernie Goss, Creighton University economics professor and author of the report.

"Even though Minnesota's unemployment rate has recently declined, based on our surveys over the past several months, I expect the state's jobless rate to increase by another 0.6 percent by the end of the year," said Goss.

Minnesota's unemployment rate was 8.0 percent in August and 7.3 percent in September. The national jobless rate rose from 9.7 to 9.8 during the same timeframe.

While Minnesota's economy appears to be slowly improving, other states across the Midwest did not fare so well, according to the survey. Creighton's Mid America region, which includes Minnesota, Iowa, South Dakota and North Dakota, Missouri, Nebraska, Kansas, Arkansas and Oklahoma, lost 425,000 jobs last month.

The region's Business Conditions Index slumped from 56.2 in September to 51.8 last month, "indicating a fragile recovery," Goss said. "This month's decline suggests that the economic recovery underway is going to be a disappointing one. In fact, the volatility and level of the overall index over the past several months indicates that a double-dip recession is a growing possibility. Downturns in farm income, in addition to legislative uncertainty in Washington [over health care reform and unemployment benefit extensions], are having negative impacts on the regional economy."

While some suppliers surveyed by the ISM said they are still coping with greater lead times on semiconductor parts, rising commodity price increases in the food sector and a softening in transportation equipment orders for 2010, overall U.S. indicators are looking up.

The Commerce Department reports factory orders today and economist expect a rise of 1 percent. As for the job market, research firm IHS Global Insight still expects the U.S. jobless rate to top 10 percent between now and mid-2010. But it will rise at a much slower rate before peaking and declining, the firm said.

Dee DePass • 612-673-7725