Manufacturers in Minnesota and the core of the country bounced back in June after worrisome signs that growth was slowing earlier this year.
Factory improvements specifically in Minnesota were so strong that they buoyed economists’ hopes for a possible strong finish through the rest of the year, according to a closely watched economic report issued Wednesday by Creighton University. Yet some economists also warned that all manufacturing growth could be tempered by global factors such as the strong dollar and continued weakness in Europe.
Creighton’s Mid-America Business Conditions Index just for Minnesota rose to 54.3 in June from 51.1 in May after supply managers reported improvements in new orders, sales, production and delivery lead times. To compare, the index for Creighton’s nine-state region rose to 53.0 in June from 50.4 in May.
Any index above 50 signals growth.
Economists bemoaned May’s performance, which basically signaled near-zero growth for the region that includes Minnesota, Iowa, Nebraska, the Dakotas, Kansas, Missouri, Arkansas and Oklahoma. Poor ag equipment sales and the pullback in oil production and equipment sales hurt the region’s factory performance in May.
While June signaled an improvement, the Creighton report noted pockets of concern.
“Much weaker business conditions for firms tied to energy are restraining the overall reading,” said Ernie Goss, director of Creighton’s Economic Forecasting Group. “Weaker conditions were particularly evident in Oklahoma and North Dakota, two energy-producing states. This weakness is spilling over into metal manufacturers throughout the region.”
Minnesota, which is home to manufacturing behemoths such as 3M, Ecolab, Toro, Donaldson and Polaris Industries, appeared to escape such damage.
Its index not only rose, but “growth was reported across a broad range of Minnesota firms for the month,” Goss said. “Durable goods manufacturers, including electronic component producers and metal manufacturers, joined [nondurable goods producers such as] food companies in reporting solid upturns in business activity for the month. This means economic growth for Minnesota will be higher than the rest of the region and the nation into the fourth quarter of this year.”
U.S. manufacturing up, too
Manufacturers nationwide also saw some improvement in the month of June. The Institute of Supply Management (ISM) reported separately Wednesday that the June manufacturing index rose to 53.5 from 52.8 in May. Improvements in new orders and employment contributed to the gain.
Jefferies LLC Money Market Economist Thomas Simons said the ISM “data is a bit stronger than expected.”
“The June reading is the highest since January, offering further proof that the sector is no longer dragged down by the poor weather and port delays that plagued the first quarter,” he said. “Manufacturing, along with the rest of the economy, continues to make ground in the expansion process.”
Others were not so quick to celebrate.
Cliff Waldman, chief economist for the Manufacturers Alliance for Productivity and Innovation, said the ISM “positive reading needs to be placed in context … [The] reading is indicative of continued manufacturing output gains at a slightly accelerated pace. But amidst myriad global challenges and conflicting data” the industry still faces hardships.
In June, only 11 out of 18 manufacturing sectors grew. And the reports that track new U.S. factory orders and production showed “generally flat” growth in June, Waldman said.
“By contrast, the component that tracks the backlog of orders fell by a disconcerting 6.5 percentage points from May to June,” he said. “The backlog index is now well into contraction territory, foreshadowing manufacturing weakness over the next few months.”