Manufacturers in Minnesota and nearby states expect strong year ahead

The region's manufacturers reported a mostly strong 2021 and expect more growth this year — if they can just find the needed workers.

A new report from the the Federal Reserve Bank of Minneapolis and Minnesota Department of Employment and Economic Development (DEED) found a largely rosy outlook among more than 400 manufacturers from Montana, the Dakotas, Minnesota, northwest Wisconsin and Michigan's Upper Peninsula; about half surveyed were Minnesota firms.

"Businesses are pretty optimistic and on average they're expecting 2022 to come in at or better than 2021," said Joe Mahon, a regional outreach director for the Minneapolis Fed.

Nine out of every 10 manufacturers surveyed in November and December say orders, production levels and employment will remain at the same level or higher this year.

The overall positive outlook comes as manufacturers face a trio of related problems — labor availability, supply chain troubles and lower profits due to higher costs.

While the pandemic is often blamed for the worker shortage, the problem has been building for years, said Ron Wirtz, regional outreach director at the Minneapolis Fed.

"This a pre-pandemic problem to begin with," Wirtz said. "Employers are responding by aggressively raising wages."

Raw material shortages were at the top of the list of supply chain woes, followed closely by supplier and workforce problems.

"Some of the most difficult materials to source right now are plastic resins and plastic inputs, as well as some metals and semiconductors," Mahon said.

The increased cost of doing business — from wages and shipping to materials and energy — dampened profits even as business largely boomed last year. Two-thirds of those surveyed say profits will be flat or lower this year, and nearly all expected inflation to continue rising.

Still, most see economic growth on the horizon.

"Despite setbacks from COVID-19, inflation and worker shortages, manufacturers are finding ways to keep momentum going at their job sites," DEED Commissioner Steve Grove said in a statement.

"Minority and women-owned firms continue to see worse revenue trends overall," Wirtz said, in part because those businesses tend to be smaller. "When things got more positive, they also trailed."