Pace of growth slows at Minnesota and Midwest factories

Midwest manufacturing continued to grow in July, but effects from tariffs and other trade restrictions plus interest-rate hikes are starting to slow the pace, Creighton University reported Wednesday.

The widely watched Mid-America Business Conditions Index, which includes Minnesota, fell to 57 in July, similar to national statistics. It is the second consecutive month in which regional factory growth slowed. The index was 67.3 in May and 61.8 in June. In Minnesota, the July index declined to 55.8 from 58.8 in June.

Any index above 50 indicates growth, so economists were far from panicked by the results. It has been 20 consecutive months since economic growth fully contracted across the nine-state region.

"The regional economy continues to expand at a healthy pace with manufacturing growth of approximately 2.6 percent over the past 12 months," said Ernie Goss, director of Creighton's Economic Forecasting Growth, which issues the report. "However, I expect expanding tariffs, trade restrictions, and rising short-term interest rates from a more aggressive Federal Reserve to slow growth to a more modest, but still positive pace."

Two-thirds of the factories surveyed said tariffs or other trade restrictions had or will have a negative effect on their companies.

The factories also said they were dealing with downticks in the region's exports, new product orders, production and manufacturing employment.

On the plus side, factory delivery times sped up and inventories expanded during the month.

The Creighton University report lands just days after a host of Minnesota-based manufacturers reported rising second-quarter revenue and also talked of the escalating fuel and ingredient costs and trade worries.

Medina-based Polaris Industries, which makes off-road four-wheelers, snowmobiles and motorcycles, reported that new U.S. trade tariffs and retaliatory actions by trading partners in Canada, Europe and elsewhere will increase its costs $40 million this year.

Polaris also announced it will move some of its Indian motorcycle manufacturing from Iowa to Poland in an effort to avoid trade tariffs. The production-line move will affect only motorcycles made for European customers, company officials told Wall Street analysts last week.

Officials from 3M Co. and Ecolab told analysts last month that they did well during the second quarter but are increasing product prices to buffer the impact of rising raw-material costs and trade tariffs.

A national report issued Wednesday by the Institute for Supply Management (ISM) found that manufacturers across the country are struggling with similar issues, even as their overall growth continues, albeit at a slower pace.

"Lead-time extensions, steel and aluminum disruptions, supplier labor issues and transportation difficulties continue," said Timothy Fiore, manufacturing business survey chairman for ISM. He added that exports grew at "lower levels" and pricing pressures remain strong.

"Demand remains robust, but the nation's employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business," Fiore said.