Minnesota factories report flat growth in March

For the first time in 27 months, Minnesota factories reported "neutral" or flat growth, according to a closely watched economic report.

The report released Wednesday by Creighton University found that, as a whole, central U.S. manufacturers grew — but at a much slower pace — during March.

Minnesota's business conditions index slumped from a healthy 64 in February to just 50 in March. A 50 ranking is considered "growth neutral." The state's producers reported a healthy dose of new orders but falling sales and inventories and neutral progress in the area of delivery speeds. Minnesota's employment index signaled anemic growth at 51.10.

Creighton's nine-state mid-America Business Conditions Index fell to 51.4 in March, from 57 in February.

Also, unlike recent months when the central states outpaced peers, the mid-America index mirrored the national Institute for Supply Management report, which showed that U.S. manufacturing growth fell to 51.1 in March, from 52.9 in February.

Oriane Casale, assistant director of the Minnesota Labor Information Office, said that Minnesota employment is being affected by a tight labor market that is starting to squeeze economic growth because factories can't find the trained help they need to expand. There is roughly one job vacancy for every unemployed worker, she said.

Beyond employment, Casale said that the Creighton report may be picking up on the fact that Minnesota factories recovered and "built up a lot faster than the rest of the nation following the recession, so we are now moving into that slower but steady phase of economic growth."

"The rising value of the U.S. dollar [that] makes U.S. goods less competitively priced abroad represents a moderate economic challenge for the Minnesota economy going forward," Goss said. "The state's chief trading partner is Canada, and its number one exported product is computers and electronic equipment."

For the central United States, Creighton's mid-America surveys found that regional factory employment, new orders and overseas exports grew in March but that sales, inventories, delivery speeds and confidence levels dropped.

Goss added that Creighton's surveys detected weaker growth for firms tied to oil production, but have yet to show any substantial negative impact to firms in North Dakota and Oklahoma, two states with heavy ties to the oil sector.

"The regional index, much like the national reading, is pointing to positive but slow growth for the first half of 2015. Nondurable manufacturing firms, including food processors and ethanol producers, reported [that] sales, production and employment have weakened over the past several months," Goss said.

The monthly Creighton report covers Minnesota, Iowa, Nebraska, North and South Dakota, Missouri, Kansas, Arkansas and Oklahoma.

"A major downside to the ISM [and Creighton] reports is that the manufacturing trade deficit continues to worsen. Imports are growing faster and exports are declining," said Dan Meckstroth, chief economist for the Manufacturers Alliance For Productivity and Innovation. "Some of the weakness in the index can be attributed to the West Coast port slowdown that delayed imported components incorporated into domestic production. But for the most part, the increase in the value of the dollar, and particularly the strong U.S. growth relative to other advanced economies, is unbalancing trade. Foreign trade will be a major drag on manufacturing activity and the general economy this year and next."

Dee DePass • 612-673-7725