The construction boom underway in the Twin Cities and stronger sales of durable goods helped to rev things up for the area’s factories last month.
Manufacturers surveyed in a nine-state region by Creighton University reported growth last month due to higher demand for appliances, cars and metal parts. The report showed that Minnesota fared particularly well, as increased sales of construction- and housing-related products and other durable goods led to a jump in manufacturing activity.
“Minnesota’s economy has been boosted by an expanding construction sector,” said report author Ernie Goss, director of Creighton’s Economic Forecasting Group.
In June, builders pulled 496 permits to build 912 housing units. The Builders Association of the Twin Cities reported that housing construction so far this year is up 23 percent, which puts 2013 on track to deliver the industry’s best year since 2007.
The Creighton report showed Minnesota’s index grew to 56.2 in June from 55.2 in May, while the regional index dipped to 55.6 in June from 56.2 for the nine states that includes Minnesota, Iowa, South Dakota, North Dakota, Nebraska, Missouri, Kansas, Oklahoma and Arkansas. Any index above 50 indicates growth, while any index below 50 signals economic contraction.
“Our regional gauge has been significantly stronger than the national reading over the past several months,” Goss said. “Given other economic data over this same period of time, I think our regional indices have been on target, pointing to positive but slowing growth with diminishing inflationary pressures.”
Nationwide, other factors and other industries prompted slight growth. The Institute for Supply Management (ISM) saw its U.S. business conditions index rise to 50.9 in June from 49.0 in May due to production gains and a bump in raw material prices. Twelve of 18 industries reported gains for the month, including furniture, clothing, paper and electrical equipment makers.
“The June ISM rebounded in June from the weakest reading since June 2009, the last month of the recession,” said Jefferies & Co. Managing Director Ward McCarthy in a research note to investors Monday. “The 50.9 level in June is the highest since March, but it is not a very strong overall reading.”
McCarthy added that manufacturers nationwide are impacted by the uncertainty created by the 2013 federal tax hikes and the federal budget cuts known as sequestration.
“Manufacturers and other businesses remain uncertain as to the magnitude of the drag that these policies will generate on growth going forward,” McCarthy said. Many factories feared a reduction in federal contracts and put off capital improvements and other investments at the beginning of the year. Many still have yet “to dip their toes back into the water.”
Federal policy changes also affected producers in Minnesota and across the Midwest, the Creighton report found. Nearly 30 percent of those surveyed reported “modest impacts” from sequestration. “However, the share of businesses negatively affected has been rising slightly,” Goss said. In April, only 23 percent of surveyed manufacturers said they were affected by the sequestration.
Federal budget cuts enacted March 1 have started to have an impact on some industries. In Minnesota, the pain materialized in the form of furloughs for Department of Defense electrical workers, cuts to the Meals on Wheels program for the elderly, and delayed product orders from U.S. government agencies.