Minnesota, Midwest factories see slowest growth in two years

Midwest manufacturers, including those in Minnesota, are growing, but not as quickly as the average growth nationwide.

Creighton University's Mid-America Business Conditions Index — which tracks monthly factory growth in Minnesota and eight other central states — slid for a third consecutive month to the slowest rate in two years. The index was 54.1, down from 54.9 in October. Anything over 50 signifies growth.

The November results for Mid-America were released Monday, the same day as the monthly national report by the Institute for Supply Management. That index jumped to 59.3 in November, up from 57.7.

Minnesota's index, as measured by Creighton, slid to 53.9 in November from 54.9 the month before.

November's regional slowdown took place against a backdrop of trade woes. About 65 percent of surveyed factory heads in the nine-state region reported that new U.S. trade tariffs and retaliatory action by trading partners had increased their costs and made it harder to sell to their traditional international customers.

As an example, Midwest supply managers cited steel prices that rose by 18.2 percent in 12 months and a consumer price index that rose 2.5 percent in 12 months. In an odd twist, however, the regional export orders index rose slightly to 51.8 from October's 51.5 as some supply managers scurried to stock parts from overseas producers.

Trade tariffs were a hot topic for most Minnesota manufacturers that reported third-quarter earnings in October. 3M, Polaris Industries, nVent and Pentair all reported significant cost spikes as recent U.S. trade tariffs disrupted supply chains and inflated prices.

One positive number reported during the month was the rise in manufacturing employment for the nine-state territory that includes Minnesota, Nebraska, North Dakota, South Dakota, Iowa, Missouri, Kansas, Oklahoma and Arkansas.

"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," Ernie Goss, director of Creighton's Economic Forecasting Group, said in a statement Monday.

In the coming months, Goss said he expects the effects of lower oil prices and slowing growth will "push both wholesale and consumer inflation lower." He also expects the Federal Reserve will hike interest rates one-quarter percent on Dec. 19.

"However, last week the head of the Federal Reserve, Jerome Powell, indicated a more dovish approach to 2019 rate hikes," Goss said. "Thus, I expect the December rate hike to be the last until the second quarter of 2019."

Other analysts, such as Moody's Senior Vice President David Berge, said the manufacturing sector is at a key juncture. On Monday, Moody's Investors Service downgraded its outlook for the global manufacturing industry to "stable" from its "positive" rating.

Berge said Moody's 12- to 18-month forecast comes despite Sunday's agreement to call a truce on tariffs between the U.S. and China until March 2019.

He said any tariffs on each other's goods after that March date is "likely to have a more prominent impact on supply chains just as they contend with tight labor markets and higher transportation costs. Generally, protectionist trade measures will contribute to slowing global economic growth."

Dee DePass • 612-673-7725