Manufacturing slumps in Midwest and across the country

Dee DePass, Star Tribune (Minneapolis) on

Published in Business News

Midwest manufacturing conditions sank to their lowest levels in three years in November amid trade wars, drooping sales and anemic hiring, but they were still better than the country as a whole.

The Mid America Business Conditions Index, a widely watched Creighton University report that tracks manufacturing conditions in Minnesota and eight other central states, fell into negative growth territory for the third time in four months. November's index slumped to a worrisome 48.6 from 52.6 in October.

Any index below 50 signals economic contraction, so economists were not excited to see November's decline -- especially after conditions appeared to have rallied in October following disappointing indexes in August and September.

"Slow global growth and trade skirmishes and wars are negatively affecting growth among manufacturers in the region," said Ernie Goss, director of Creighton's Economic Forecasting Group. Minnesota's index slipped to a tepid 50.9 in November from 51.3 in October.

The Institute of Supply Management reported a national index of 48.1, down from 48.3 in October. Bloomberg reported that Wall Street was expecting a bump up to 49.4. Of concern was weakness in inventories and new orders, which is a predictor of future conditions.

The markets were down widely on the news, as well as President Donald Trump's announcement that he would raise tariffs on steel and aluminum from Argentina and Brazil and his reiteration that if talks with China break down tariffs on that country would rise as well.

The nine state region -- which also includes the Dakotas, Iowa, Nebraska, Kansas, Missouri, Arkansas and Oklahoma -- suffered one of its worst employment declines in years and saw significant declines in new orders, overall sales, and imports during the month.

Factory heads and supply managers reported in surveys that they continue to be hurt by the inability to find new workers to hire. Goss said the region lost jobs at a pace of 0.1% for the year, while U.S. manufacturing as a whole saw job growth of 0.04%.

The Midwest factory managers also said that the trade war with China and uncertain trade policies with Mexico and Canada have affected business and boosted price tags of supplies needed to operate their factories. It also affected their ability to sell abroad.

Regional export orders in November plunged to an index of 39.1 from 44.7 in October.


At the same time, import orders jumped to an index of 52 in November as factory heads ordered raw materials and other supplies ahead of a new round of U.S. trade tariffs that take affect later this month for Chinese made goods.

Goss noted that many factory heads acknowledged the pain of the trade tariffs but said they support the tariffs because they hope they will eventually lead to better and fairer trade policies down the road.

"Despite the negative impact of the trade war on jobs, 60% of supply managers in our survey support continuing, or even expanding, trade restrictions and tariffs on imports from China," Goss said. "As one supply manager responded, 'Tariffs should be applied to combat unfair trade practices (dumping) or due to adequate domestic supply.' "

Even so, some 77% of those surveyed said they will pass along the increased cost of the tariffs to consumers.

The Midwest manufacturers also injected a dose of optimism. for the next six months, supply managers were upbeat, creating a business confidence index of 52.9. That was up substantially from October's very weak 47.3, Goss said.

"I expect business confidence to depend heavily on trade talks with China, and the passage of the nation's trade agreement with Canada and Mexico, or USMCA," Goss said. "Quick passage of USMCA is very important for the regional economy and business confidence."

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