News Column

Reports Showing Slow Going for Factories

Nov. 3, 2011

Dee DePass


Monthly measures of manufacturing activity painted a mixed picture for October, with slow growth continuing across the nation while a slight contraction of activity was reported in Midwestern states.

"I think we are stuck in this slow-growth mode right now," said Wells Fargo & Co. senior economist Scott Anderson. "We are not seeing anything that will create a lot faster growth."

The Institute for Supply Management (ISM) on Tuesday reported that the nation's supply manufacturers grew for a 29th consecutive month in October thanks to a bump in new orders, production and employment. Manufacturing analysts also hailed the uptick in new orders after three months of contraction.

Yet the overall ISM business index was 50.8 percent, barely over the neutral mark of 50 percent and below September's reading of 51.6 percent. Inventories, order backlogs and imports showed signs of contraction, while raw material prices fell for the first time since May 2009.

Meanwhile, supply managers from nine Midwest states reported a slight contraction in economic growth for October, marking the first shrinkage since November 2009, according to the Creighton University Mid America study, also released Tuesday.

While Minnesota bucked the trend to show growth for the month, the Creighton report proved sobering and indicated that overall business conditions in the region had fallen to 49.9 percent in October from 52.2 percent in September. Any number above 50 indicates economic expansion. Any index below 50 signals contraction.

"It is evident that the weakness in the national economy has now hit the regional economy," said Ernie Goss, who heads Creighton's economic forecasting group. He said a below-neutral reading for one month "does not signal a recession."

The Creighton University business conditions index found that regional jobs fell for a third consecutive month; holiday business forecasts are up just 1 percent from 2010, and one in five supply managers now predict a second recession in 2012.

Six of nine mid-America states failed to see an improvement last month over business conditions reported in September. Creighton's study surveys supply managers from Minnesota, Iowa, North Dakota, South Dakota, Nebraska, Missouri, Kansas, Arkansas and Oklahoma.

Minnesota and North Dakota were the only states to accomplish both: remaining above "growth neutral" for October and improving upon September results.

Minnesota's business conditions index grew for a 27th month to 55.4 in October from 55.3 in September. Supply managers across the state reported growth in sales, delivery lead times, inventories and employment. New orders were a hair shy of the neutral growth mark.

Goss credited much of Minnesota's results to growth among durable goods producers.

"Durable goods exports (are) still holding up pretty well in Minnesota," Goss told the Star Tribune. "And on the domestic side, medical equipment manufacturing is doing really well and pushing growth and profitability forward. Growth will continue to be positive with jobs added at a slow pace over the next three to six months."

Goss said Minnesota continues to be the largest agricultural producer among the nine-state region. But higher agricultural commodity prices are reducing economic activity among some of the state's large food processors.

Exports slowing

Bradley Holcomb, chairman of ISM's manufacturing business survey committee, noted that manufacturers' comments during October's survey proved "mixed, indicating positive relief from raw material pricing and continuing strength in a few industries. But there is also more concern and caution about growth in this uncertain industry."

U.S. Bank chief economist Keith Hembre said he found it encouraging that new orders were up nationally and that adjustments were being made to factory inventories. On the negative side, he found it troubling that manufacturing exports were flat.

"China's report came out overnight and it was softer. And the European indices came out a week ago and they are all showing a broad-based deceleration of growth outside the United States," he said. "Given the slowing in economic growth abroad, it is not surprising that you see lowered export orders."

Of the 18 manufacturing industries ISM surveyed, eight grew and six contracted during October. The others were flat. Growing sectors included computers and electronics, petroleum and coal, food and tobacco, minerals and metals, fabricated metal, paper products and machinery.

October's shrinking sectors included plastics and rubber, chemicals, apparel and leather, printing, electrical equipment appliances and miscellaneous products.

Dee DePass -- 612-673-7725

Source: (c) 2011 the Star Tribune (Minneapolis)

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