Manufacturing slows in June for both Minnesota and Midwest

Manufacturers across Minnesota and the Midwest saw growth slow dramatically in June amid lackluster orders, production, employment and exports.

Creighton University's widely watched Mid-America Business Conditions report, released Friday, showed that the region did not keep pace with the gains seen by the nation as a whole.

The business conditions index for the nine-state Mid-America region fell to 50.1 from May's 52.1. Minnesota's index slumped to 51.6 from 54.3 in May.

The state and regional indexes, which range from 0 to 100, managed to stay above 50, meaning they technically showed some manufacturing growth for a fifth month. But the declines from May proved sobering and signaled angst among producers. That's because an index of 50 signals no growth at all, and recent indexes have nudged closer to that "no growth" turf.

While manufacturers avoided dipping below 50, which signals contraction, factory managers surveyed noted that growth is getting harder to achieve as demand for durable goods lags.

Ernie Goss, Creighton's director of the Economic Forecasting Group, noted that over several months, the regional and national indexes have "indicated the manufacturing sector is experiencing anemic business conditions. … The region's manufacturing sector is expanding, but at a slow pace."

Gains from short-lived or nondurable goods are offsetting "continuing losses for regional durable goods manufacturers" in the center of the country, Goss said.

At other firms, such as Glenwood-based Fast Global Solutions in central Minnesota, the challenge is weak equipment orders in the agricultural sector as farmers struggle with low crop prices. Luckily, orders for Fast Global's airline ground equipment and its massive package conveyor systems for Fed-Ex, UPS and Amazon are growing, said CEO Dane Anderson.

"So two of our three businesses are doing well," he said.

That mix of "some growth" paired with "crimped" divisions is indicative of what manufacturers reported in the Creighton survey.

"If you are in ag, you are challenged," Anderson said. "Doesn't matter whether it's John Deere, Case International Harvester or New Holland, all the big players are down. Companies that offer ag products only are severely distressed right now."

Ag and oil equipment producers are generally not hiring now, while manufacturers in non-ag sectors are having trouble finding enough workers to keep fully staffed as baby boomers retire, Anderson said.

"We do a separate survey of rural areas in 10 states, which includes Minnesota. Over the past several months, we have been recording record-low ag equipment sales," he said. "This has had significant and negative impacts on the manufacturers [e.g., John Deere] as well as local retail sellers. They are cutting workers as sales drop."

The Creighton survey did not reveal panic over the United Kingdom's decision to leave the European Union. The Brexit vote is not likely to cause much strife among U.S. producers, Goss said.

The nine-state Mid-America region — Minnesota, Iowa, the Dakotas, Nebraska, Kansas, Missouri, Arkansas, and Oklahoma — exported almost $2 billion in goods to the U.K. and imported about $1.9 billion.

That created a relatively small regional trade surplus of $100 million, Goss said.

"Thus, a British recession or weak British currency will not have a significant impact on the Mid-America economy," he said. "The larger impact on the regional economy would be a substantial strengthening of the dollar against a broad range of currencies."

Only about one-third of those surveyed expected a "slightly negative" impact from the change in currency exchange rates that are likely to hurt exports.

Also Friday, the ISM issued its regular monthly report and said that the ISM Manufacturing Index, a national measure, rose to 53.2 in June from 51.3 in May as new orders, production and even employment grew, even as pricing and inventories contracted.

The uptick nationwide surprised analysts. "The data is stronger than expected as the consensus [among economists] was looking for the index to be unchanged at 51.3," said Thomas Simons, senior money market economist at Jefferies LLC.

"The improvement this month is encouraging, both because the [index] is now at the highest level since February 2015 and because the improvement is broad-based among the different sub-components," he said. "Overall, this is a significantly more positive read on the manufacturing sector than the regional surveys released this month."

Dee DePass • 612-673-7725