Minnesota factory output grew in June but at a slower pace amid labor shortages and trade-tariff woes.
The state's index slid to 53.4 in June from 55 in May amid decreases in new orders and sales, slower delivery lead times and fresh pressures on food and other nondurable goods makers, according to a widely watched economic report released Monday by Creighton University.
The nine-state Mid-America Business Conditions Index showed faster growth, with the regional index jumping to 55.4 in June from 54.3 the month before. The increase was the first since March as manufacturers reported restocking inventories and hiring more than during past months.
"The regional economy expanded at a slower pace than the rest of the nation for the first half of 2019," said Ernie Goss, director of Creighton's Economic Forecasting Group. "Weak farm income, produced partially by tariffs and flooding, pulled regional growth below that of the nation. Even so, based on our manufacturing survey over the past several months, I expect overall growth to remain solidly positive."
Any index above the critical threshold of 50 signals economic growth, so economists were not alarmed by the fluctuations across the region, one that also includes the Dakotas, Nebraska, Iowa, Kansas, Missouri, Oklahoma and Arkansas.
Producers across the nine-state region previously reported being affected by severe labor shortages, rising prices and trade tariffs and supply chain disruptions that hoisted costs. In June, those factories again reported a slowdown in imports and exports, and they continued to wrestle with fierce competition for workers, a scenario that boosted wages 4.8%.
Still, the regional confidence index rose to 59.1 in June from May's 54.5. Many surveyed supply managers said operations were hurt by the trade tariffs on Chinese imports, but they also said they still supported the tariffs and hoped new negotiations might bring long-term relief.
While Minnesota factory growth slowed last month, there were still positives, Goss noted.
Minnesota metal producers and other durable goods manufacturers "are experiencing slight positive gains in economic activity. On the other hand, nondurable goods producers, including food processors, experienced slight negative economic conditions in recent months."
Minnesota's factory slowdown mimicked results nationally.
A key U.S. manufacturing index fell to 51.7 in June from 52.1 in May as new orders, inventories, prices and delivery times lagged, according to a separate report issued Monday by the Institute for Supply Management (ISM).
Comments from surveyed supply managers "reflect continued expanding business strength, but at soft levels," said Timothy Fiore, ISM business survey committee chairman, in a statement. "June was the third straight month with slowing [manufacturing] expansion. Demand expansion ended with the new orders index recording zero expansion; the customers' inventories index remaining at a too-low level; and the backlog-of-orders index contracting for the second straight month. New export orders remain weak."
On the flip side, U.S. producers reported that sales and hiring picked up in June.
According to the ISM report, 12 of 18 U.S. manufacturing industries reported growth during the month, led by furniture; textile mills; nonmetallic minerals, food/beverage/tobacco; petroleum/coal; and chemicals.
All eyes are on Creighton, ISM and other economic reports that might signal where the U.S. manufacturing industry is headed.
Many manufacturing giants, including Minnesota-based 3M Co., Ecolab, Polaris Industries, Tennant and Graco report quarterly earnings results later this month. Industry watchers are curious to see their results and whether the economic slowdown some analysts predicted for 2019 holds off or takes hold.
First-quarter results across Minnesota were mixed, with 3M missing expectations and announcing layoffs, while Ecolab saw skyrocketing sales that beat Wall Street's expectations. Most producers are watching trade negotiations with China closely. The Trump administration has threatened to deploy trade tariffs on another $300 billion worth of imported Chinese goods unless China renegotiates a trade agreement and stomps out patent infringements and other types of intellectual property theft.