2 indexes hint that trouble lies ahead

  • Article by: DEE DePASS
  • Star Tribune
  • July 2, 2012 - 9:14 PM

Business activity for manufacturers in Minnesota and across the nation declined slightly in June, signaling tougher days ahead, according to two closely watched economic reports released Monday.

Creighton University's Business Conditions Index for the nine-state Mid-America region reported strong employment trends but found signs of concern over Europe's economic woes and pressure against new U.S. export orders.

Creighton's overall index fell to 57.2 in June from 57.6 in May, which "indicates regional economic growth is likely to weaken slightly in the next three to six months," said Ernie Goss, the report's author and the director of Creighton University's Economic Forecasting Group.

Meanwhile, the Institute for Supply Management said its index of U.S. manufacturing activity fell to 49.7, down from 53.5 in May, the lowest reading since July 2009. Readings below 50 indicate contraction; those above 50 show growth.

Minnesota's business conditions index slid to 58.6 in June from 60.2 in May, according to the Creighton report. While activity slowed, there were several strong areas, including new orders, employment and sales.

For the entire nine-state region, agricultural income was positive, but it slowed in June.

Trade, a key component of the Creighton report, fell to 48.4 in June, the lowest since August 2009. While the export question remains tough, Goss expects the average index to remain above 50 in the coming months for Minnesota, Iowa, North Dakota, South Dakota, Nebraska, Oklahoma, Kansas, Missouri and Arkansas.

Goss said exports from Minnesota's durable goods sector were a big plus for 2012 growth. Minnesota's strongest exports are durable goods like machinery, medical instruments, electrical machinery and vehicles.

On the other hand, the state's nondurable goods sector has experienced "a much softer 2012," Goss said. Such "exports are likely to contribute little to second half 2012 growth."

Monte Hanson, spokesman for the Minnesota Department of Employment and Economic Development (DEED) said DEED numbers show a somewhat similar trend, with durable goods growing faster than nondurable products, which typically represent processed foods, animal slaughtering and processing, paper manufacturing and printing.

Hanson said DEED issued a report two weeks ago saying Minnesota's manufacturing growth was driven by durable goods manufacturers and that the state's employment increased in 23 of the last 28 months. In two years, durable manufacturing added 17,400 jobs, compared with only 600 for non-durable items.

Not in a panic

Despite the alarms from the Creighton and ISM reports, state officials said they are not panicked because the state mostly exports durable goods and they don't expect Europe's economic problems will hurt Minnesota badly.

"Obviously, this is something we need to pay close attention to" because European countries buy roughly a third of Minnesota's exports, said Katie Clark, executive director of the Minnesota Trade Office. "But so far we are not seeing any drastic changes compared with our numbers from last year. So there is nothing that is a great concern."

Clark predicted that Minnesota's manufactured exports will continue to grow, but more slowly.

Minnesota reported a 2 percent, or $90 million, jump in exports to $4.5 billion for the first quarter, the most recent data available. The majority of that growth was in products sold to South Korea, Japan, Mexico and Canada. However, Europe did not disappoint.

Minnesota exports to the troubled European Union actually rose 2 percent, or $15 million, to nearly $1 billion during the first quarter. Double-digit export growth to the United Kingdom, Belgium and France helped offset losses in Germany and the Netherlands. Clark noted that the state will monitor Germany closely because it's Minnesota's fifth largest trading partner and exports to there fell 17 percent in the first quarter.

State exports to troubled Greece and Spain dropped 52 percent and 24 percent, respectively. But since they rank 82 and 38 on the list of trading partners for Minnesota, "they don't make that big an impact," Clark said.

Still, Goss' prediction of a slowdown comes as state officials are pushing manufacturers to double exports in five years and to increase related jobs in the Twin Cities by 100,000.

But signs indicate that could be tough.

Industries that declined

Nationally, the ISM report found that nine of the 18 manufacturing industries it tracks declined. Those included non-metallic mineral products; leather goods; paper products; plastics and rubber; chemicals; computer products; petroleum and coal; food, beverage and tobacco; and transportation equipment.

Two industries were neutral, while seven saw growth, including furniture makers; printers; fabricated metal products; miscellaneous manufacturers; electrical equipment and appliance component makers; machinery firms; and primary metals.

Dee DePass • 612-673-7725

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