The Minnesota and other Midwest manufacturing sector grew robustly in February despite West Coast shipping woes that slammed much of the country, according to two widely watched economic reports released Monday.
While U.S. factory gains slowed in February, Midwest producers reported increases in factory sales and delivery speeds, while benefiting from decreases in raw material prices for the month.
The combination increased the nine-state Creighton University Mid-America Business Conditions Index to 57.0 in February from 54.8 the month before. Any index above 50 signals growth. In contrast, the national Institute for Supply Management index fell from 53.7 in January to 52.9 in February.
The "Mid-America" region includes Minnesota, Iowa, North and South Dakota, Nebraska, Missouri, Kansas, Oklahoma and Arkansas. The region's manufacturing grew even though 44 percent of Midwest factories — including Toro, 3M and Polaris Industries — reported West Coast shipping problems.
Bennett Morgan, president of Polaris Industries, which makes ATVs, motorcycles and snowmobiles, said he considers Polaris lucky since just 30 percent of sales are international and affected by port issues.
In the meantime, orders for its ATVs and motorcycles "have been chugging along," Morgan said. "We have our challenges and plenty of head winds, but demand has been pretty strong for us in January and February."
Toro said last month that it benefited from East Coast snowstorms and that the weather should continue to boost sales of its snow throwers and snowplow equipment.
The Creighton study found similar stories from other Midwest companies. "Indices over the past several months are pointing to positive economic gains [for] the next three to six months for the region," the report said.
However, not all was rosy. Midwest exports, employment and confidence levels grew at a slower pace in February than in January. "Areas of the region linked closely to the energy sector, including ethanol, are experiencing pullbacks in economic activity," said Ernie Goss, director of the Creighton University Economic Forecasting Group.
Despite ethanol sluggishness, Minnesota's business conditions index jumped to an impressive 64.7 from 60.1 in January amid strong orders and product sales. Results marked Minnesota's 27th consecutive month with an index above 50.
"Durable goods manufacturers in the state are growing at a solid pace," Goss said. "However, even with this recent healthy growth … this heavy manufacturing sector has lost almost 13,000 jobs. Average weekly wages for all Minnesota workers … have grown by an anemic 0.5 percent over the past year."
Minnesota wasn't alone in seeing employment lag.
The national Institute for Supply Management breaks out employment, which was down 2.7 percentage points to 51.4 percent in February. The overall index of 52.9 reflected slowdowns in new orders, production and employment. Inventory levels rose while commodity prices remained flat.
Surveyed supply managers expressed frustration over the labor woes and shipping backlogs at West Coast ports. Factory heads said the slowdown negatively impacted trade and cost extra money to ensure that inventories were sufficient.
Suppliers said the port issues "negatively impacted exports and imports, requiring workarounds and added costs," said ISM business survey committee chairman Bradley Holcomb. Morgan at Polaris said durable goods makers like his company jumped through hoops to avoid port-related shutdowns. He said Polaris shipped goods through Texas and Vancouver, flew parts in, doubled inventory orders and worked early with supply managers worldwide to keep production flowing.
"We feel OK right now, but there is still some fragility to the U.S. economy," Morgan said.
The "rise in the value of the U.S. dollar against the euro" and Canada showed up in the national ISM report, said Don Norman, economic studies director for the Manufacturers Alliance for Productivity and Innovation.
Minnesota-based manufacturers know the problem well. Graco Inc., which makes fluid handling equipment; chemicals firm Ecolab Inc.; pump and valve maker Pentair PLC; filtration giant Donaldson Co.; and ATV makers Arctic Cat and Polaris all recently reported that the soaring U.S. dollar impacted revenue and may hurt them in the future.
Balancing worries about U.S. ports and currency volatility were lower gasoline and heating prices. That spurred consumer spending during the month and was "a net plus for the economy," Norman said.