Midwest manufacturing sector still lags, but it is improving

Despite continuing trade and hiring woes, manufacturing in Minnesota and the Midwest returned to growth territory in February after several months of losing ground, one widely watched business index showed.

The nine-state Mid-America Business Conditions Index from Creighton University improved to a still- soft 50.5 for the month of February, according to a report released Tuesday. That's up from 48.3 in January on a survey where anything above 50 signals economic growth.

The index for Minnesota was 52.1, up from 50.1 in January and 39.4 in December, as supply managers who were surveyed reported an uptick in new orders, sales, delivery lead times and inventories.

"Our surveys over the past several months indicate the manufacturing sector is now gaining jobs, but at a very slow pace," said Ernie Goss, the study's author and director of Creighton University's Economic Forecasting Group.

Goss said he expects Minnesota's minimal employment gains will eventually "spill over into the broader state economy," but that may not happen until sometime in the second quarter.

Economists generally welcomed February's improvement but noted that the industrial sector remains fragile despite pockets showing signs of recovery. Higher orders, for a number of reasons such as currency fluctuations, do not always translate to higher profits.

A national report by the Institute of Supply Managers also released Tuesday indicated that only nine of 18 manufacturing sectors grew in February. The ISM index in February was 49.5. That's up from 48.2 in January, but still shows negative growth.

Minnesota is still lagging in the area of job creation. Goss said the state has lost 200, or 0.1 percent, of its manufacturing jobs.

Economists noted that Minnesota is getting pinched by Canada's recession, as well as the high U.S. dollar and resulting negative currency exchange rates. While the state is improving, it is not entirely out of the woods, economists said.

"A strong U.S. dollar and weakness among the nation's chief trading partners remains a restraint on regional growth," Goss said of the nine-state manufacturing region that Creighton tracks.

February's regional import index fell to a weak 50.1 from January's 53.1.

Canada, which is the region's chief trading partner, was a particular source of pain as the U.S. dollar has strengthened 30 percent against the Canadian dollar since July 2014. "This upturn has made U.S. goods much less competitively priced in Canada," Goss said.

In November, the Minnesota Trade Office reported a 27 percent plunge in third-quarter exports to Canada.

"The strong U.S. dollar [makes] U.S. goods less competitively priced abroad. [That] and a weaker global economy remain obstacles to improvements in export orders," Goss said. The strong dollar makes imported goods appear cheaper and so has "boosted imports above growth neutral for the month."

Similar results were found nationwide, as the ISM report showed that trade worsened for U.S. manufacturers in February.

ISM Manufacturing Business Survey Committee Chairman Bradley Holcomb noted that several surveyed factory heads complained that U.S. demand was solid while international demand remained soft. They also said that ongoing global pricing wars in oil and gas were hurting business.