22 posts categorized "Manufacturing"

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.

District manufacturing sees solid job uptick in 2011

In an otherwise lackluster year for employment, job growth in manufacturing last year was generally robust and widespread across the Ninth District.

Among the district’s 303 counties, total manufacturing employment grew a shade over 3 percent in 2011. The strongest growth was in North and South Dakota (4.7 and 5.6 percent, respectively). But there aren’t many obvious localized patterns, save for generally positive employment growth.

For example, just over 70 percent of district counties—with valid counts—registered manufacturing job gains (see Chart 1). But that ignores a significant geographic hole in the manufacturing data; small populations in rural counties meant that job figures for more than 40 percent of all counties in Montana and the Dakotas were too low to be released for privacy reasons.

But small size was not an inhibitor for manufacturing growth. Broken down by county size, aggregate job trends have been pretty consistent across the district both during the recession and in 2011. Job losses from 2007 to 2010 averaged between 10 percent and 20 percent among counties of all sizes, while job gains last year ranged from 2 percent to 4 percent, with medium-sized counties generally faring the best (see Chart 2).

Manufacturing Ch. 1 -- 9-7-12

Job gains among large counties in each state were also “positively mixed.” Minnehaha County in South Dakota, home to Sioux Falls—saw modest manufacturing growth of 2.2 percent last year. In contrast, Cass County, N.D. (home to Fargo) grew by almost 10 percent. Hennepin County—home to Minneapolis and more manufacturing jobs than North and South Dakota combined—saw 2 percent growth.

This year, most indicators suggest that manufacturing has continued to grow, though recent national and district-based surveys indicate that there has been some slowdown this summer. For much more data and analysis on manufacturing trends in the Ninth District, watch for the upcoming October issue of the fedgazette.

Makin’ power while the wind (subsidy) is still blowin’

Like a nice, steady breeze, the nation’s wind power capacity has been expanding, with Ninth District states making a major contribution. But whether that arc of increase continues could well depend on what Congress decides regarding an expiring tax credit.

After five years of strong growth, the United States now trails only China in installed capacity (47 to 62 gigawatts, respectively) and has 1.5 times the wind-generating capacity of Germany and seven times that of France, according to a comprehensive August report by the U.S. Department of Energy. Wind still makes up a small portion of domestic power generation, at 3.3 percent, but that’s a fourfold increase just since 2006.

Texas is the leader in wind development, and by a wide margin (see Chart 1). But Minnesota and North Dakota are in the top 10 in wind capacity. Minnesota installed as much new wind capacity last year—542 megawatts (MW)—as many states have in sum. South Dakota also made its mark. It has almost 800 MW of wind capacity, virtually all of it installed since 2007, and representing almost all of the state’s increase in power generation over this period. Wind’s share of electricity capacity in the state leapt from less than 2 percent in 2007 to 22 percent, the highest rate in the country (see Table 1).

Wind power Ch1& Table1

But the industry is nervously awaiting congressional action on a federal wind energy production tax credit of 2.2 cents per kilowatt hour—currently equal to more than $1 billion annually and set to expire at the end of the year. The credit was created two decades ago and has been extended numerous times or reborn after being allowed to expire. Its renewal is questionable this time around given sentiment in Congress about budget deficits.

The credit's expiration could affect not only future wind power generation in district states, but also district employment at a fair number of manufacturing facilities that supply the various components and services for wind farm development (see map).

Already there have been rumblings, according to local news reports. Otter Tail Corp., of Fergus Falls, Minn., has announced plans to sell DMI Industries, a maker of wind towers in West Fargo, N.D., with the eventual fate of 216 employees unknown. St. Paul-based WindLogics, a wind forecasting company, recently cut 10 employees because development work has stopped.

Officials with Mortenson Construction, one of the largest wind farm builders in the country and located in Golden Valley, Minn., said several hundred jobs could be eliminated if the tax credit expires. In Aberdeen, S.D., officials at the Molded Fiber Glass plant have reportedly put on hold a plan to add 100 to 200 jobs in light of the tax credit limbo.

 Wind map -- 8-15-12jpgSource: U.S. Department of Energy

A rising oil tide lifts all wages

Average wages have risen dramatically in western North Dakota, where rapid oil and gas development has transformed the economic landscape. Between 2004 and 2011, the average annual wage in counties with substantial oil activity increased over 80 percent in constant dollars, to about $56,000—a surge in compensation that dwarfed increases in the state and nation.

Some of the increase is due to a rising proportion of well-paid workers engaged in activities related to oil and gas—exploration and drilling, transporting oilfield supplies and equipment, building new facilities for oil companies and oilfield service firms. Jobs in mining (a statistical category dominated by oil workers in the region), trucking and construction have posted strong gains during the oil boom (see chart). In 2004, oil-related jobs accounted for just 12 percent of total employment in five core oil-producing counties; in 2011, that share was 41 percent. On average, workers in oil-related industries earned twice the pay of workers in other industries last year.

But most of the increase in oil patch wages stems from labor demand chasing supply, not just in oil-related industries, but in virtually every sector of the regional economy. In communities such as Williston, Watford City and Dickinson, N.D., few workers are available to fill thousands of job openings. Many employers—including those in industries that depend to a lesser extent on oil industry spending—have responded by offering higher pay. For example, in core oil counties, inflation-adjusted wages for hotel and food service workers increased 63 percent from 2004 to 2011. Over the same period, real manufacturing wages increased 21 percent.

An analysis of the relative impact of the two trends—a shift in employment to oil-related activity and across-the-board wage increases—shows that broad wage hikes account for close to three quarters of the average wage increase during the oil boom, while the shift in employment to oil-related activity accounts for about one quarter of the average wage increase. So the oil rush has lifted all workers in the region, not just workers tied to oil and gas extraction.

For much more on labor trends in the oil patch, see the forthcoming April issue of the fedgazette.

Bakken wages -- 4-2-12