Minnesota and Midwest manufacturers continued to grow in October but at the slowest pace since January 2017 amid worries about trade tariffs and rising interest rates, a widely watched economic report found.
Creighton University's nine-state Mid-America Business Conditions Index, which includes Minnesota, fell to 54.9 in October from September's strong index of 57.5. Minnesota's index fell to 54.9 from 60 in September.
October's results, released Thursday, marked the 23rd consecutive month that manufacturing in Midwestern states grew (any index above 50 signals growth), but economists warned that the growth was the lowest reading in 22 months.
In October, regional factory employment, imports, exports, and inventories slowed dramatically, while wholesale prices shot up, reflecting inflationary pressures.
"The regional economy continues to expand at a healthy pace. However, as in recent months, shortages of skilled workers remain an impediment to even stronger growth. Furthermore, supply managers are reporting mounting negative impacts from tariffs and trade skirmishes," said Ernie Goss, director of Creighton University's Economic Forecasting Group. "I expect expanding tariffs, trade restrictions and rising short-term interest-rates from a more aggressive Federal Reserve, to slow regional growth to a more modest, but still positive pace in the months ahead."
Surveys of manufacturing and supply managers in nine states showed that recent U.S. trade tariffs implemented by President Donald Trump's administration and retaliatory action by U.S. trading partners boosted steel prices 12.2 percent in 12 months. At the same time, the consumer price index jumped 2.3 percent.
Some 60 percent of supply managers surveyed last month reported trade tariffs negatively impacted their business. That's up from 40.8 percent a month earlier.
The regional business confidence index, which measures optimism for the next six months, fell to 59.6 in October from 68 the month before.
Factory leaders surveyed were from Minnesota, Iowa, Missouri, Kansas, Nebraska, North Dakota, South Dakota, Oklahoma and Arkansas.
Several multinational manufacturers reporting quarterly results last month said trade tariffs and their implications will hike costs for the year. 3M expects costs to rise by $100 million in 2019, Polaris Industries by $40 million this year. Steel enclosures maker nVent said metal costs will rise by about $8 million this year.
"Even with the [recent] NAFTA resolution, trade barriers and tariffs are slowing international sales," Goss said. The Trump administration has negotiated changes with Mexico and Canada to the North American Free Trade Agreement called U.S.-Mexico-Canada Agreement, or USMCA.
Trade talks are expected to continue with China, which is currently in a trade war with the United States as both sides continue to increase the number of goods facing new import taxes.
Trade aside, labor-shortage woes continue to be a top concern among regional producers in central U.S. states. While regional employment grew 2.4 percent over the last 12 months, the employment index has recently been declining. The nine-state index fell to 52.2 in October from 56.2 in September and 58.5 in August.
Minnesota's employment index is still growing and reached 52.2 in October. But there are signs of slowing for certain product sets.
For the year, Goss noted, Minnesota's nondurable goods manufacturers added 1,400 workers, a gain of 1.2 percent. That placed Minnesota sixth among the region's nine states.
Minnesota's durable-goods producers added 4,400 jobs for a 2.2 percent gain over 12 months. That pushed Minnesota "to number eight among the nine states in terms of the rate of growth," Goss said.
The slowdown in regional manufacturing growth was reflected nationally. In a separate report, also issued Thursday, the Institute for Supply Management saw its October producer index fall to 57.7 from 59.8 in September amid slowing production, employment and inventory growth and rising raw material costs.
"Overall, the manufacturing community continues to expand, but at the lowest level since April 2018," said ISM Manufacturing Business Survey Committee Chairman Timothy Fiore in a statement. "The expansion of new export orders softened" during the month while price pressures continue.
During a host of quarterly earnings reports last month, manufacturing executives from across the country — including, Sherwin-Williams, Ecolab and Caterpillar — said they were increasing their own product prices and taking other measures to counteract rising costs for steel, aluminum, fuel, ingredients and/or transportation.