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Midwest factories see a slowdown

  • Article by: DEE DePASS
  • Star Tribune
  • November 1, 2012 - 8:53 PM

Two widely watched manufacturing reports told a tale of two Octobers: one showing U.S. productivity on the rise and the other showing a slowdown across the Midwest, including Minnesota.

The Institute for Supply Management, a private trade group, reported Thursday that U.S. manufacturing expanded for the second month after three months of contraction. Despite a slight drop in factory employment, ISM's index of supply managers saw a bump in new orders and production.

The ISM index rose to 51.7 in October from 51.5 in September. Any index above 50 signals growth. The report is good news, experts say, as manufacturing has been a positive force in the economic recovery until recent months.

"Manufacturing continues to hold up better in the U.S. than in the rest of the world," said Nigel Gault, chief U.S. economist at IHS Global Insight. "It is still under pressure from global economic headwinds and domestic policy uncertainty. But improvements in the domestic economy -- notably in housing and consumer spending -- are providing support."

The ISM results followed a flurry of economic reports Thursday that showed consumers are growing more confident and spending more on automobiles and at retailers. The U.S. jobs report, to be released Friday morning, is expected to show modest job gains during October.

While the economy has grown slowly since the recession ended more than three years ago, the recovery has been uneven across the country and by various economic sectors. In the Midwest region, for example, manufacturing activity fell in October to its lowest level since May 2009, according to the other manufacturing report released Thursday -- the Mid-America Business Conditions Index by Creighton University.

The Midwest index for the nine-state region, which stretches from Minnesota and North Dakota down to Arkansas and Oklahoma, fell to 46.5 in October from 50.4 in the previous month. Minnesota's index slid to 47.1 from 47.2.

"Our surveys indicate that Minnesota continued to lose jobs in October," said Ernie Goss, an economics professor at Creighton University in Omaha, Neb., and author of the Mid-America Business report. "Nondurable goods producers, especially food processors, are reporting weakness."

Growth in the Midwest region declined last month in the areas of employment, new orders and production, according to the Creighton report. Still, exports were "surprisingly strong."

But supply managers also found that hopes for a happy holiday shopping are modest. Midwest retailers only expect a 2 percent sales increase over last year, the report found.

Jeanne Boeh, chairwoman of the Economics Department at Augsburg College in Minneapolis, said she has spoken with groups in plastics, electronics and steel who say orders and production have slowed. Still, she notes, it wasn't so long ago when conditions were much worse.

"You have to remember that in the early days of the [recession], the nation was losing over half a million jobs a month," Boeh said. "So where we are now is not great, but it's not horrible."

In September, Minnesota had gained a net total of 5,900 jobs, despite losing 2,500 manufacturing jobs during the month and another 2,700 in August. The state's jobs report for October will be released Nov. 22.

Fred Zimmerman, a retired University of St. Thomas economics professor, said he's not surprised that Minnesota's manufacturing sector is starting to struggle again.

"Minnesota has lacked effective economic development programs for many years," Zimmerman said. "We've lost the Ford plant, Lockheed Martin, Northwest Airlines and many others. Our officials, none of whom can weld, do not know what to do to invigorate Minnesota's economy."

The Los Angeles Times contributed to this report. Dee DePass • 612-673-7725

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