Economic conditions for Minnesota and other Midwest manufacturers slipped in February as factories braced for sagging sales from looming federal "sequestration" budget cuts, according to a closely watched Creighton University report issued Friday.

Some manufacturers fear sales will falter due to severe cutbacks that began Friday as Congress failed to produce alternatives before Friday's deadline.

"More than a third of companies [we] surveyed expect federal spending sequestration to result in a reduction in unit sales for their company," said Ernie Goss, the report's author and director of Creighton's Economic Forecasting Group.

The federal cuts, which make 9 percent across-the-board spending cuts to most federal programs, are expected to save the government $85 billion. But they are also expected to bring pain. The snipped funds traditionally help the poor, elderly, educators, and even government contractors and product suppliers.

In Minnesota, new product orders failed to grow and sales remained largely flat in February as sequestration worries dug in. Minnesota's business conditions index slid in February, despite showing mild job gains.

Concerns about sequestration and the global slowdown are not helping forecasts in Minnesota or the rest of the Midwest, economists said.

"Fiscal austerity is already having a chilling effect on the U.S. economy," said Scott Anderson, chief economist at Bank of the West. The "sequester goes into effect today. In response I have cut my forecast for second quarter GDP growth by 0.5 percentage points. But this assumes only one month of sequester."

Sequestration woes joined other troubles hitting Creighton's Mid-America region, which tracks Minnesota, Iowa, South Dakota, North Dakota, Kansas, Arkansas, Nebraska, Missouri and Oklahoma.

The nine-state business conditions index slid to 53.1 in February, from 53.2 in January as employment and economic optimism fell and exports remained weak. Wholesale prices and inventory levels rose during the month. Inventories are a closely watched economic indicator as a surge sometimes signals that products are sitting around in warehouses and not selling fast enough.

"Companies in our survey have now expanded inventory levels for three straight months," Goss said. "Even though the housing sector is clearly getting back on its feet, manufacturing, especially manufacturing connected to global markets, continues to restrain overall growth for the region and nation."

Still, U.S. manufacturers reported slight improvement in February to new orders, sales, employment, deliveries and inventories, according to a report separately released Friday by the national Institute for Supply Management. The ISM manufacturing index rose to 54.2 from 53.1 in January.

Fifteen of 18 U.S. manufacturing sectors reported growth with the strongest coming from clothing and leather makers, paper, electrical, plastic and metal product makers and furniture product manufacturers.

Dee DePass • 612-673-7725