Midwest manufacturing contracts amid low crop prices and equipment orders

Sinking crop prices and job losses clobbered manufacturers across the Midwest in July, as activity in the sector contracted for the first time since January.

The Creighton University Mid-America Business Conditions Index, released Monday, showed a drop to 47.6 in July from 50.1 in June as new orders, jobs, inventories, and confidence plummeted.

The decline is significant because the index — for the nine-state region that includes Minnesota — is below the break-even mark of 50. Any index below 50 signals economic contraction, while any index above 50 signals economic growth for the sector.

Minnesota's manufacturers are faring better. While the state's reading also fell in July — to 51.2 from 51.6 in June — it remained above 50, meaning that factories were still growing. The business conditions index runs from 0 to 100, so numbers close to or below the break even point of 50 signal problems.

Ernie Goss, director of Creighton University's Economic Forecasting Group, said the declines in the nine-state region are showing up nationwide and have "indicated the manufacturing sector is experiencing anemic to negative business conditions."

Creighton's survey of manufacturers across Minnesota, Iowa, Missouri, Nebraska, Arkansas, Kansas, South Dakota, North Dakota and Oklahoma found that just over a third reported that poor economic conditions abroad were the greatest factor depressing sales for the past year.

However, 21 percent of factory heads said low crop prices, the high U.S. dollar and subsequent slumping agriculture equipment orders had stalled growth in their operations.

In Minnesota, new factory orders, sales and inventory contracted in July, even as jobs and delivery times grew.

Last month, Minnesota-based companies such as Polaris, Arctic Cat and Pentair reported seeing tougher environments in farm and dairy country and in recession-weary Canada, the largest trading partner of all nine states in the Creighton survey.

Last week, 3M Co., the Maplewood-based diversified manufacturer, reported slowdowns for the April-to-June quarter in its electrical, energy and industrial businesses.

Goss noted that Minnesota's manufacturing sector is generally seeing a boost in jobs and orders for nondurable goods, but seeing job losses and other woes when it comes to heavy or durable goods. Within the durable goods sector, however, there were bright spots as technology and medical equipment manufacturers continue to experience positive growth, Goss said.

Nationwide, manufacturers are also showing mixed results.

Twelve of 18 manufacturing industries nationwide reported upticks in product orders during the month. Growth was key among textile, printing, wood, furniture, chemical, food and beverage and metal producers.

Industries wrestling with contraction included makers of apparel, electrical equipment, appliances, plastics, machinery, primary metals, transportation equipment and paper products.

Lindsey Piegza, chief economist at Stifel Nicolaus & Co., said the July slowdown in U.S. manufacturing was "hardly a terrible reduction." Still, the downturn in specific components such as new orders and employment "suggests the likelihood of additional weakness in manufacturing activity as we head further into the third quarter," she said. That might be enough to prevent the policymakers at the Federal Reserve from justifying "a second-round rate hike any time soon."

Dee DePass • 612-673-7725