Manufacturers show strong growth in Minnesota and Mid-American states

After a frigid spring, U.S. and regional manufacturers showed surprising strength in May as new orders and employment jumped in the Midwest, according to two widely watched reports released Monday.

For Minnesota and the eight other states that make up the "Mid-America" core of the country, manufacturers reported the highest economic index in three years, according to Creighton University's Mid-America Business Conditions survey.

Its business conditions index hit 60.5 in May from 60.4 in April as new orders, productivity, employment and exports continued to increase. Any index above 50 indicates economic growth, while any figure below 50 signals economic contraction.

"This is the highest overall reading that we have recorded in more than three years," said Creighton University's economic forecasting director, Ernie Goss. "Strong growth in new orders over the past two months was the prime factor pushing the overall index higher. The fulfillment of these orders in the months ahead will strengthen regional economic growth over the next three to six months."

Creighton's Mid-America index tracks factory performance in Minnesota, Iowa, Kansas, Nebraska, North Dakota, South Dakota, Arkansas, Missouri, and Oklahoma.

In Minnesota alone, the business conditions index jumped to a robust 67.3 from 64.9 in April as new orders, sales and inventories improved significantly, supply managers reported. Goss said surveys suggest "solid improvements for manufacturing and the overall state economy for the next three to six months."

However, he added that Minnesota's wage growth remained weak at 1.5 percent in May and noted that manufacturing's employment ranks are growing but remain 6.6 percent lower than before the Great Recession. Analysts credited the factory employment change to recession cutbacks, the rise in factory automation and to a wide swath of retiring baby boomers.

After a software glitch was discovered early Monday, the ISM issued a corrected report in the afternoon showing the national manufacturing index actually rose to 55.4 in May from 54.9 in April. (Its earlier report incorrectly showed a decrease.)

The update showed that U.S. factories increased new orders and productivity in May. Manufacturing employment grew for an 11th consecutive month, but hiring was slower than in the past. May's employment index was 52.8, down from 54.7 in April.

Bradley Holcomb, chairman of the ISM Manufacturing Business Survey Committee, noted the employment change but said overall comments from surveyed supply managers "reflect generally steady growth but note some areas of concern regarding raw materials pricing and supply tightness and shortages."

Todd Hedtke, vice president of Allianz Investment Management, said in a phone interview that "manufacturing on the national level is still positive, but not quite as good as expected. You can definitely see a little bit of noise showing up in the figures."

Hedtke, however said he was upbeat about the increase in U.S. construction activity and about some manufacturing employment trends that varied greatly by region. "With the national ISM figures, employment numbers were a little bit lower and concerning. But on the local [Creighton] figure, you see the [Midwest] employment jump way up. It's up to 60 and that is a key message there."