U.S., Midwest manufacturers report slight improvement while still in tightening mode

Conditions for Minnesota and other central U.S. factories improved in January but they remained subpar in much of the region, according to a widely watched economic report released Monday by Creighton University.

Creighton University's Mid-America Business Conditions Index, which tracks manufacturers in Minnesota and eight other central U.S. states, rose to 48.3 from the 39.5 reported in December. Minnesota fared better with a reading of 50.1.

Any index above 50 signals growth, while any figure below 50 signals economic contraction. December's plunge into such negative territory caused alarm, and the numbers were the worst seen since the 2008-2009 recession.

Meanwhile, data from the Institute for Supply Managers indicated that the pressures facing regional manufacturers were actually nationwide. The ISM's January index reading was 48.2. That was up from 48.0 in December but also marked the fourth consecutive month of economic contraction for U.S. manufacturers.

In the Midwest, Ernie Goss, director of Creighton University's Economic Forecasting Group, blamed manufacturers' difficulties on the strong U.S. dollar and on economic weakness of key trading partners such as Canada, China, Brazil, and parts of Europe.

"The U.S. dollar strengthened by almost 9 percent since June of last year. And on Friday, the dollar posted its largest gain against the Japanese yen since the fourth quarter of 2014. This, along with economic weakness among the nation's chief trading partners has squeezed, and will continue to squeeze, U.S. and regional manufacturers," Goss said.

He added: "Areas and industries heavily dependent on durable good manufacturing, especially those linked to exports, agriculture and energy, are experiencing the largest losses."

However, Minnesota is not out of the woods.

An analysis showed the state's new orders, production, and inventories shrank in January, even as gains were made with delivery lead times and hiring.

Minnesota's main antagonist is the continued weakness in recession-weary Canada, the state's leading trading partner.

"Since Canada is Minnesota's No. 1 export market, exports will remain under pressure since the value of the U.S. dollar to the Canadian dollar has climbed by more than 8 percent since October 2015," Goss said.

Canada delivered a one-two punch to the entire region because the country is the largest trading partner of each of the nine states in Creighton's Mid-America aggregation.

Jay Timmons, CEO of the National Association of Manufacturers, said, "We are clearly seeing a lot of headwinds, especially on the international side. We are starting to see some softness in some internal markets."

Bradley Holcomb, chairman of the ISM's Manufacturing Business Survey Committee, said that last month's survey of factory managers found that the downturn in the oil and gas sector was increasing some companies' "risk of suppliers filing for bankruptcy and reducing their workforce."

But in other cases, factory bosses noted that the drop in oil prices lowered the cost of raw material chemical supplies, which was "providing favorable margin comparisons."