Manufacturing

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Is Minnesota’s manufacturing industry headed for a slump?

Recent readings from the Institute for Supply Management and Creighton University say yes

By Brian Martucci
Tue, 2016-11-15 09:38

Late last month, the Institute for Supply Management raised eyebrows across the Midwest when it reported a much lower than expected factory activity reading across the nine-state region (per Fox Business). The 50.6 reading, a five-month low, missed Wall Street’s expectations by nearly four points. Readings above 50 indicate expansion, while readings below 50 indicate contraction.

The ISM index is famously volatile. As recently as June, Midwest manufacturing was on a tear. That month’s reading came in at 56.8, nearly five points ahead of expectations (per The Enterprise).

Still, the magnitude and direction of the miss has some Midwest economy-watchers nervous that the region’s manufacturing sector is headed for a soft patch.

Other data points support that uneasy sentiment. Earlier this month, Creighton University released its closely watched Mid-America Business Conditions Index, which includes manufacturing metrics. Across Creighton’s entire nine-state region, the October reading sat at 43.8, down nearly two points from 45.5 in September. That marks the fourth consecutive month of contraction, signaling that the Mid-America region is indeed in a business slump.

The index’s employment metric fell even farther, from 46.8 in September to 44.4 in October, a troubling sign of weakness on the jobs front. Most worrying of all was the forward-looking confidence metric, which collapsed to 39.7 from an already-weak 48.5 in September. This suggests that manufacturing executives across the Mid-America region, including here in Minnesota, are positively frightened about their industries’ six-month outlook.

But the picture isn’t uniformly dreary. Here in Minnesota, Creighton’s local Business Conditions Index actually inched up in October, climbing to 48.7 from September’s 48.4 reading. Though new orders lagged in most manufacturing subsectors, inventories, employment and deliveries were stable, despite slight job losses during the period.

According to Dr. Ernie Goss, director of Creighton University’s Economic Forecasting Group, Minnesota’s mining and machinery subsectors underperformed relative to other subsectors. “Durable goods manufacturers in the state, such as metal producers and machinery manufacturers, recorded losses for the month,” he explains. “This activity more than offset gains for nondurable goods producers such as food processors.”
Neither Creighton nor ISM provide state-level sentiment data, so it’s impossible to quantify Minnesota-based manufacturing executives’ expectations for the coming months. To the extent that political uncertainty clouded execs’ sentiment, things may start looking up now that the presidential election is in the rearview, but it’s too early to tell. All we can really say for now is that Minnesota is a relative bright spot in a weak regional manufacturing economy — but even we’re not currently doing all that well.