Midwest manufacturing crawls back into growth territory in December

With boosted sales and orders, conditions for manufacturers in Minnesota and eight other central states crawled back into growth territory in December, nudging confidence levels higher after a difficult fall season, a closely watched economic report said.

Creighton University's nine-state Mid-America Business Conditions Index rose to 50.6 in December from November's disappointing 48.6, according to data released Thursday. Minnesota's index slipped to 50.7 in December from 50.9 in November.

Any index below 50 signals economic contraction, so supply managers and economists were hoping for an uptick after three months of contraction over a four-month period.

The region — which also includes Iowa, the Dakotas, Nebraska, Missouri, Kansas, Arkansas and Oklahoma — saw improvements in December sales and new orders. Delivery speeds of raw materials continued to grow but at a slower rate. Employment and export orders continued to show significant economic contraction.

Imports, however, were unchanged from November as supply managers continued to boost purchasing from abroad in anticipation of higher tariffs in the weeks and months ahead.

"Surveys over the past several months indicate that the regional manufacturing economy is being negatively impacted by the trade war with China and the global economic slowdown," said Ernie Goss, director of Creighton's Economic Forecasting Group. "This will be a drag on the overall Mid-America economy for the first half of 2020. However, I expect overall regional growth to remain soft but positive for the first half of the year."

Company executives in Minnesota — who report fourth-quarter earnings results later this month — signaled weeks ago that the trade war with China and uncertainty surrounding U.S. trade policies with Mexico and Canada had dramatically affected their supply chains, pricing and the scheduling and sourcing of raw material orders.

In the last few months, companies such as 3M, Graco, Polaris and others said they increased some product prices to accommodate for extra trade tariff costs. Bill Gray, the president of the flexible plumbing pipe maker Uponor North America in Apple Valley, said during an interview last month that uncertain U.S. trade policies and new threats about U.S. tariffs on Brazil and Argentina-made goods "is really undermining confidence in the [commercial construction] market."

In the December Creighton survey, 43% of supply managers reported that tariffs had resulted in increased prices of supplies purchased by their firms, Goss said.

At the same time, factory purchasing managers noted they are taking advantage of the temporary freeze of new U.S. tariffs that were to go into effect Dec. 15 on $160 billion worth of Chinese-made goods.

With that pause, import orders increased, as did factory owners' confidence levels, Goss said.

"Looking ahead six months, economic optimism, as captured by the December Business Confidence Index, climbed to 57.6 from November's 52.9," Goss said. "Potential January passage of the U.S.-Canada-Mexico trade agreement and Phase I of the trade agreement with China boosted the regional business confidence index for the month."