15 posts categorized "Manufacturing"

A summer of steady growth in the Ninth District

The Ninth District economy continued to show signs of steady growth through the summer months, characterized by job growth, decreases in unemployment rates and gains in home building.

As of August, nonfarm employment in district states was up 1.8 percent relative to a year ago, posting a net increase of about 122,000 jobs. North Dakota reported the strongest employment growth among district states, accounting for about one in every six jobs added in the Ninth District over the past 12 months despite the state’s workforce comprising only 7 percent of the district total. Employment growth in other district states was largely in line with the national trend (up 1.8 percent), except in South Dakota, where nonfarm employment growth was 0.7 percent.

The district unemployment rate dropped to 4.7 percent over the same period, down 0.8 percentage points from a year ago. The spread in unemployment rates among district states has narrowed over the past 12 months. Regions with relatively high unemployment rates, such as the Upper Peninsula of Michigan, Wisconsin and Montana, posted larger year-over-year declines than Minnesota and the Dakotas, where unemployment rates started out much lower last year.

Manufacturing wage growth in the district slowed to 1.4 percent during the three-month period ending in August, compared with a growth rate of 2.5 percent during the same period a year earlier. With the exception of North Dakota and Wisconsin, growth in manufacturing wages in district states was below the national average of 1.6 percent. Montana’s manufacturing workers reported the lowest year-over-year growth rate in hourly earnings among district states, which barely reversed the flat or declining trend in manufacturing wages in the state for much of 2013 and early 2014.

During second quarter 2014, personal income growth (adjusted for inflation) across district states was positive, posting a 2.2 percent overall increase relative to a year ago for the district. Except for North Dakota, all district states posted lower personal income growth rates relative to the national average of 2.4 percent, while South Dakota’s state ranking in growth was near the bottom.

New housing authorizations for the three-month period ending in August were up 8.2 percent in district states; however, rates varied widely among district states. Montana and South Dakota posted year-over-year declines of over 20 percent in new housing authorizations, while North Dakota showed a 42 percent increase over the same period. Housing authorizations in Minnesota and Wisconsin were up 5 percent and 10 percent, respectively, closer to the national average of 7.7 percent.

Home prices continued to show increases in several district cities. During the second quarter of 2014, home prices were 7.4 percent higher than a year ago in Bismarck, N.D., 6.7 percent higher in Minneapolis-St. Paul, 3.2 percent higher in Fargo, N.D., and 2.6 percent higher in Sioux Falls, S.D. Nationally, home prices increased by 4.4 percent during the same period.

For current and historical data on the economic indicators referenced here, see the “Monthly Summary” spreadsheet, along with other Ninth District data that are updated regularly.

Business survey: Ninth District should continue to grow

Results from a Federal Reserve Bank of Minneapolis ad hoc survey of 603 Ninth District firms (see methodology) reveals that economic activity at firms across industry sectors increased over the past four quarters and should continue over the next four quarters (see table).

Looking back: Firms across industries reported increased sales revenue, profits, productivity and employment. The availability of labor decreased, especially in the construction sector, where the majority of respondents reported a lack of available labor. Respondents from most sectors reported increases in selling prices and input costs. Wage and benefit increases were moderate. They also noted an uptick in availability of financing.

Looking forward: Respondents are more optimistic for the next four quarters, as a higher proportion of respondents reported expectations for increased sales revenue, profits, productivity and employment. The availability of labor is expected to continue to decrease. Respondents expect to raise prices and pay more for inputs. However, wage and benefit increases are expected to be moderate.

State economic outlook: Respondents expect their state economies to grow as well. Employment, consumer spending and profits are all expected to increase. However, the vast majority of respondents across industries expect inflation to increase.

August ad hoc table -- 8-21-14

Ad hoc survey methodology: On Monday, August 18, an email was sent to 5,000 contacts (not a random sample) from various sectors around the Ninth District. By 12 noon Wednesday, August 20, 603 responses were received, representing a 12 percent response rate. The largest number of responses came from finance (24 percent), professional services (20 percent), manufacturing (15 percent), real estate (13 percent), construction (8 percent) and nonprofits (7 percent).

Ninth District businesses remain optimistic

There has been a fair amount of attention given to the possibility of an economic slowdown in 2014. While only a small anecdote in the volume of economic data, a recent survey still suggests a positive outlook in 2014 for the Ninth District economy.

The Federal Reserve Bank of Minneapolis conducted an ad hoc survey of 135 Ninth District firms and asked them about their outlook for 2014 (see methodology). Over 80 percent expressed optimism for their community’s economy over the next 12 months. This is comparable to the 74 percent of respondents to the November 2013 fedgazette Business Outlook Poll. Results by sector show that construction respondents were the most positive with 9 out of 10 reporting optimism, followed by manufacturing (87 percent), professional services (80 percent) and finance, insurance and real estate (79 percent).

“Seeing improved trends,” said a Minnesota banker, reflecting the overall mood of respondents; 53 percent expect increased sales for their operations compared with only 9 percent that expect decreased sales. Part of the sales increase is due to higher productivity, which 65 percent said occurred at their firm over the past 12 months. Higher sales expectations are partially reflected in the 39 percent of businesses that expect to increase prices, while 8 percent expect to lower prices.

More companies also plan more capital investment—30 percent expect an increase over last year’s spending, while 12 percent predict a decrease. Companies are having a better time financing these capital expenditures through better access to bank credit; 19 percent reported improved access, while only 5 percent noted deteriorated access.

More companies are hiring, too, with 34 percent expecting more employment and only 9 percent expecting less. Firms are facing some challenges; 44 percent noted that securing workers was a challenge, and over half reported that complying with government regulation was a challenge. FIRE respondents, at 69 percent, reported the most concern about complying with regulations.

Ad hoc survey methodology: On Feb. 10, an email was sent to 1,000 business contacts from various sectors around the Ninth District. By 5 p.m. on Feb. 12, 135 responses were received, representing a 13.5 percent response rate. The largest number of respondents came from finance, insurance and real estate (44 percent), professional services (24 percent), manufacturing (14 percent) and construction (10 percent). The disproportionate number of FIRE responses could have some unknown influence on results.

Manufacturing outlook: U.S. catching up with Ninth District

It took all summer, but the nation’s manufacturers appear to have finally caught the sector’s good vibe already present for the better part of a year in three Ninth District states.

The Mid-America Business Conditions Index, put out monthly by Creighton University, shows that the overall outlook of manufacturers in district states where the poll is conducted continues to be upbeat, with Minnesota scoring the highest at 59 (above 50 indicates expansion, and below 50 indicates contraction). After declining steadily through the first half of the year, the overall U.S. score turned notably upward in July and August, ending at almost 56.

Employment sentiment has been more volatile, especially in the Dakotas, where the manufacturing base is comparatively small but reaping the benefits of strong state economies. U.S. employment sentiment has risen almost to the level of district states, which have declined of late, with all scores falling between 53 and 55.

Mid-America -- September survey -- 9-11-13

West-central Minnesota is manufacturing strong job growth

While pundits and policymakers loudly mourn the general loss of manufacturing jobs, the west-central region of Minnesota has quietly enjoyed robust job growth in this sector.

From 1990 to 2012, the nation saw a continuation of the downward trend in manufacturing jobs. That trend was exacerbated by the Great Recession, which hit manufacturing states like Minnesota and Wisconsin hard. Minnesota has experienced a small uptick in manufacturing jobs in recent years, but not nearly enough to offset the losses just from the Great Recession.

But a nine-county region in west-central Minnesota—a federally designated economic development planning district bureaucratically referred to as Minnesota EDR4—has seen job growth above and beyond the recession’s downturn. These nine counties (Becker, Clay, Douglas, Grant, Otter Tail, Pope, Stevens, Traverse and Wilkin) have seen their manufacturing job base increase by 53 percent from 1990 to 2012. That contrasts with a national decline of 33 percent over the same period (see Chart 1).

Much of that growth occurred during the 1990s; in Minnesota, manufacturing jobs grew by almost 60,000 during the decade, and the “R4” region similarly grew by about 2,500 jobs, hitting close to 10,000. But over the next decade-plus, Minnesota manufacturing saw a steady decline, shedding about 95,000 jobs—about one in four—by 2012. But the R4 region grew another 15 percent over the same period.

Wages have also grown in the region, though their performance is less compelling. Since 1990, average weekly (inflation-adjusted) manufacturing wages have grown by about 36 percent both nationwide and for the R4 region (see Chart 2). However, there remains a considerable gap in actual weekly pay in the region compared with the national average for manufacturing workers.

West-central MN manufacturing jobs CH 1-2 -- 9-3-13

What makes for this island of good manufacturing activity? There are likely many reasons, including industry composition, available labor, transportation access and prevailing wage scales, which are lower in the region compared to the national average.

West Central Initiative (WCI), a nonprofit organization that provides financial support for worker training in the region, credits part of the success to intensive workforce development and training by employers. Regular surveys on business outcomes from employee training are conducted in the region by an independent firm and facilitated by Enterprise Minnesota, a manufacturing consulting organization and one of 59 federal Manufacturing Extension Partnership affiliates. These surveys suggest that training efforts often paid off for companies. Another recent study of labor turnover from 2006 to 2011, commissioned by WCI, also found that average labor turnover among regional firms participating in training programs was lower and statistically significant in 22 of 23 quarters studied. Sources in the region credit organic growth as well as growth from acquisition.

WCI identified about 30 companies with 100 or more employees in the region, and that size has allowed some to grow by acquisition.

“Growth accelerates with growth,” according to Bill Martinson, a business development adviser with Enterprise Minnesota. “As companies get bigger, they accumulate more human and capital resources with which to do things. A big boost is the ability to do acquisitions. We didn’t see acquisitions until the last few years.” Martinson added that many of the companies are now supplying multinational corporations, “which makes them less susceptible to a weakened U.S. economy.”

Ninth District manufacturing continues expansion ahead of nation

While manufacturers nationwide continue in something of a holding pattern according to recent surveys, manufacturers in three Ninth District states continue to see growth, according to a monthly survey of supply managers by Mid-America Business Conditions Index, published by Creighton University.

The May survey showed overall sentiment in Minnesota and the Dakotas mostly holding in the mid-50s (an index score over 50 indicates growth; below 50, contraction). The index for employment remained in growth territory but saw both positive and negative change from April in the three states (see charts). The overall index for the nation turned negative (at 49), while employment sentiment teetered on the growth fence (50.1).

The Dakotas are taking turns grabbing headlines. In May, South Dakota saw very strong growth in overall sentiment as well as for employment, while its northern neighbor declined marginally on overall sentiment and continued a volatile pattern in employment. Ernie Goss, director of Creighton's Economic Forecasting Group, said that wages have grown very strongly in North Dakota manufacturing, and “nondurable goods manufacturers, especially food processors, are experiencing very healthy growth. On the other hand, durable goods manufacturers are experiencing pullbacks in economic activity.”

Mid-America June survey -- 6-5-13

Manufacturing in Ninth District more optimistic

After a brief lull in the second half of last year, manufacturers in the Ninth District appear to be getting a second wind of optimism, especially compared with their national peers.

Survey results from the April Mid-America Business Conditions Index show that manufacturers in Minnesota and North Dakota are growing in their overall optimism, while U.S. manufacturers have declined for three straight months and are close to negative in their sentiment (an index score above 50 indicates expansion, while an index below 50 indicates contraction). Minnesota’s index for new orders has also rebounded strongly for the past two months. While South Dakota declined in overall sentiment last month, it remains several points above the United States.

Respondents from these three district states (Wisconsin and Montana are not part of this survey) were upbeat on the employment front as well. After a slowdown in hiring sentiment in North Dakota through the early part of this year, April figures almost jumped off the chart. Hiring sentiment has been more moderate in Minnesota and South Dakota, but both are on a steady upswing, especially compared with the nation, which has been trending down in recent months.

Scores are based on surveys of purchasing managers in these states and are conducted monthly by Creighton University. The U.S. results are also mirrored in a similar but different index of purchasing managers by Markit, a global financial information services company. Markit's survey does not have a district component, but its April survey saw the U.S. index drop to 52.1, the weakest manufacturing expansion in six months.

Mid-America -- April survey charts 5-2-13

 

More evidence that businesses expect to grow, increase hiring

Signs are upbeat that the Ninth District economy will continue to grow, according to a recent poll of more than 300 business contacts from across the district (see methodology below).

For starters, 40 percent plan to increase employment at their firms, and nearly three-quarters of these firms cited expected high sales growth as the most important factor. Only 7 percent plan to decrease employment. In the same survey a year ago, 38 percent planned to increase employment and 10 percent planned to cut jobs.

Other important factors cited for new hiring were overworked staff, improved financial condition of firms and the need for additional skills. The majority of respondents plan to use word of mouth and advertising to get new employees. Twenty-eight percent plan to use a recruiting firm, and surprisingly few (9 percent) plan to raise starting pay.

For those respondents not planning to hire additional people this year, most expected low growth sales and a desire to keep operating costs low. Many reported difficulty finding skilled candidates. Though fiscal policy developments were not a factor for most respondents, 35 percent said they had a detrimental effect on hiring and 4 percent said they would increase hiring plans.

The survey also asked about wages and benefits; 36 percent expected wage growth of 2.5 percent or more, and a similar amount expected positive wage growth of less than 2.5 percent (see Chart 1). Respondents generally believed benefit increases would be larger than those for wages (see Chart 2).

  Ad hoc survey Ch 1-2 -- 2-5-13

Methodology: On Jan. 15, the Minneapolis Fed invited, via email, about 1,000 Beige Book contacts from across the Ninth District to answer the special question in a web-based survey. By Jan. 31, 303 contacts had filled out the survey. The respondents come from a variety of industries (see table below).

Ad hoc survey METHOD TABLE -- 2-5-13

Another angle on 2013 business expectations

January is a time for economic forecasts for the coming year, and the Minneapolis Fed has already released its 2013 regional outlook, along with its business poll and manufacturers survey. These surveys showed that respondents generally expect more of the same; they have a moderate outlook for the growth of sales and hiring at their firms.

A separate ad hoc poll, conducted by the Minneapolis Fed about the same time as the above polls, provides further support for this modest outlook for 2013. The survey asked firms about capital expenditure plans and inventory levels, which are closely tied to firms’ expectations. Responses from 72 businesses, from a variety of industry sectors, showed an outlook mostly consistent with the Minneapolis Fed’s forecast.

More than half of respondents reported that their capital spending stayed the same in the second half of 2012 (see Chart 1), which is about what one might expect with continued growth. However, more firms reported decreases in capital spending than increases. The majority of firms reported that capital expenditures were primarily for replacement and maintenance of existing equipment. But more than 40 percent of respondents said that most or some of their capital spending was going toward expanding capacity.

Mpls Fed ad hoc survey -- 1-24-13

Among firms that said they were expanding capacity, the most common reason given was improved sales prospects, cited by just over a quarter of all the firms surveyed, followed by 19 percent who said current capacity was stretched too thin. Another 11 percent of firms also reported that their current equipment is not well suited to their future needs.

Slightly more than a quarter of firms surveyed reported that they were cutting capacity. Of those, about half cited reduced sales prospects. Current excess capacity and increased costs were each blamed by just over a third of firms trimming capacity.

Respondents appeared more optimistic about inventory levels (see Chart 2). Nearly two-thirds of all firms surveyed reported being comfortable or very comfortable with current inventory levels. The survey asked if there were signs of excessive inventories due to sluggish demand, and 80 percent reported no sign. Further, most district firms seem optimistic about their future demand prospects. More than half reported that they were optimistic or somewhat optimistic that they may be ready to build inventories; only 9 percent said they were pessimistic.

One final positive note: This survey was conducted late in 2012, before the resolution of the “fiscal cliff.” At the time, nearly two-thirds of respondents said uncertainty about the future was curtailing current capital spending, and more than half specifically cited the state of demand in the face of fiscal contraction as a source of uncertainty. With at least temporary resolution of that uncertainty, for better or for worse, the outlook may have brightened. Maybe.

Beige Book, Minneapolis: Ninth District economy slowly improving

The Ninth District economy expanded modestly during late summer and early fall, according the most recent Beige Book released this week by the Federal Reserve Bank of Minneapolis.

Each of the 12 Federal Reserve district banks drafts a similar report, which in sum are a summary of regional economic conditions across the country, in preparation for the Oct. 23-24 Federal Open Market Committee meeting, where interest rates and other monetary policy issues are decided.

In the Ninth District, improved activity was seen in construction and real estate, consumer spending, tourism and professional services. Energy and mining continued to perform at high levels, while agriculture varied widely, with crop farmers generally in better condition than animal producers. On the softer side, manufacturing activity slowed in late summer, and wage increases remained subdued, although stronger increases were reported in some areas. But labor markets tightened somewhat, and price increases were generally modest.

For those interested in other regional, national or historical Beige Book reports on economic conditions, the Minneapolis Fed offers everything in one spot.

 

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