Report: Manufacturing growth slows in Midwest, including Minnesota

Weaknesses in the agriculture and energy sectors are starting to trickle down to manufacturers.

A widely watched economic report issued Monday by Creighton University found that manufacturers in nine Midwestern states, including Minnesota, are growing but at a slower pace than past months.

"The regional index, much like [recent] national readings, is pointing to positive but slowing growth through the third quarter of 2015," said Ernie Goss, director of Creighton's Economic Forecasting Group. "Firms linked to energy and agriculture are experiencing pullbacks in economic activity. Job growth in [the] two energy-producing states [of] Oklahoma and North Dakota has moved into negative territory."

Creighton's mid-America business conditions index slumped to 50.4 in May, from 52.7 in April. Any figure above 50 indicates growth. In Minnesota, the index was 51.1, down from 51.3 in April.

While new orders and sales in Minnesota grew during the month, inventories and employment lagged.

"Minnesota's economy has expanded in 2015, but at a slower pace than for the same period in 2014," Goss said. "Our surveys over the past several months point to even slower, but positive, growth in the month ahead for the state."

The slowdown seen regionally sat in contrast to a national report released Monday by the Institute for Supply Management [ISM]. It showed a slight uptick in overall manufacturing growth in May, to 52.8, from 51.5 in April.

Already Minnesota-based firms and factories such as Donaldson Co. and AGCO, and nearby Deere & Co. and Caterpillar, have been hurt by slowing agricultural or mining equipment orders.

Ten days ago, Bloomington-based Donaldson reported that third quarter sales for its off-road ag, mining and construction equipment fell 24 percent. Donaldson makes the filtration systems for the massive vehicles' hydraulic, fuel, exhaust, coolant and transmission systems.

"The end market pressures we saw are reflective of our customers' orders," said Donaldson CEO Tod Carpenter.

Agriculture equipment manufacturers have been hurt by a global slowdown in agriculture, leading to production cuts and layoffs in the Upper Midwest.

CNH, one of the world's largest ag equipment makers, in April laid off 90 workers at its plant in Benson, Minn., which makes cotton pickers and sprayers and floaters for fertilizer and chemical applications. At a plant in Fargo, N.D., that makes tractors and construction equipment, CNH laid off 80 workers in May and plans to lay off another 38 this month.

With weak prices for corn and soybeans, farmers are worried about just breaking even; big-ticket equipment purchases aren't a high priority. Costs for inputs like seed, fertilizer and herbicides are about $7 a bushel, while the price of corn is around $3.50 a bushel, said Doug Peterson, head of the Minnesota ­Farmers Union.

"That doesn't make for a very good situation for buying something," he said. "When prices are down, we pull back."

Iron ore producers, dealing with prices that have bottomed out, have idled or closed, affecting more than 1,000 on the Iron Range and more in other U.S. plants.

Nationally, 14 manufacturing sectors grew nationwide in May, the ISM survey found. Taking the lead were apparel and leather makers, as well as furniture, paper and food manufacturers. Textiles, computer and electrical product sales slowed during the month.

While April's index reading was the lowest level seen nationally since May 2013, last month's "data is a bit stronger than expected," according to Jefferies Money Market economist Thomas Simons. "The deceleration in manufacturing activity that has been ongoing since the recent peak in October, is showing signs of stabilization as the drags from poor weather and West Coast port closures continue to abate."

Staff writer Mike Hughlett contributed to this report.

Dee DePass • 612-673-7725