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Manufacturing in Midwest, including Minnesota, slumps in October

Conditions in Minnesota and other central U.S. factories fell yet again as manufacturers in October struggled with a drop in wholesale farm and energy prices and the strong U.S. dollar, according to a widely watched economic report released Monday.

The Creighton University Mid-America Business Conditions Index also found that employment fell throughout its nine-state region as manufacturers let workers ago or slowed hiring.

The trifecta of woes produced a disappointing index in Minnesota that sunk to 42.7 from 53 in September. That was a hair better than the index for the entire nine-state region, which slumped to just 41.9 in October from 47.7 in September.

Any index below 50 signals economic contraction. Worrying economists is that October delivered the third consecutive month of results below 50 for the nine-state mid-America region. Minnesota, specifically, was challenged last month by the high dollar, lackluster orders and declines in inventories. The strong U.S. dollar also affected export orders.

“Our survey of supply manager in the state point to slight losses into the first quarter of 2016 as manufacturing exports slide even lower,” said Ernie Goss, report author and director of Creighton University’s Institute for Economic Inquiry.

The entire region, which includes Minnesota, Iowa, South and North Dakota, Missouri, Arkansas, Oklahoma, Kansas and Nebraska, faces similar restrained forecasts.

“The regional index, much like the national reading, is pointing to weak, and potentially negative growth through the fourth quarter of 2015 for the overall economy,” Goss said. “This weakness has been showing up in our surveys over the last three months.”

It has also showed itself in most Minnesota manufacturers’ third-quarter earnings reports. During the last month, Ecolab, 3M, Tennant, Pentair and Arctic Cat all lowered full-year forecasts.

A national report issued Monday by the Institute for Supply Management (ISM) found that manufacturing across the country still grew but at a slower pace in October.

Related: Midwest now ships more crude than it receives.

Only seven of 18 U.S. manufacturing industries reported growth last month. The ISM index fell to 50.1 in October from 50.2 in September, officials said.

Comments from U.S. factory managers surveyed “reflect concern over the high price of the dollar and the continuing low price of oil, mixed with cautious optimism about steady to increasing demand in several industries,” said Bradley Holcomb, chairman of ISM’s Manufacturing Business Survey Committee.

U.S. manufacturing saw growth in sectors including printers, food and beverage companies and metal product fabricators. Factories in shrink mode included apparel, primary metal and petroleum, coal and plastics makers and electrical equipment makers.

Economists noted that the ISM manufacturing index was the lowest since May 2013.

“With the dividing line between growth and decline at [an index of] 50, the [ISM] reports indicate that manufacturing activity is almost at a standstill, neither rising or falling,” said Dan Meckstroth, chief economist of Manufacturers Alliance for Productivity and Innovation. “Only 26 percent of the time in the last 25 years has the index been at or less than 50.1, so activity is abnormally weak.”

But Thomas Simons with Jefferies LLC said it is important to put the national factory data in context.

“The fact that the manufacturing sector is struggling is not news,” he said. “Since the beginning of the commodity disinflation cycle that began in late 2014, the sector has been decelerating.”

He acknowledged the ISM index is “dangerously close” to falling into the “below 50” contraction territory. “But this is not a coal mine canary signaling a recession,” Simons said.

He noted that manufacturing makes up less than 16 percent of the total economy and that the service sector continues to do well.

“We will likely see that performance reflected in a solid nonmanufacturing ISM index when the data is released on Wednesday,” he said.

This article was written by Dee Depass from Star Tribune and was legally licensed through the NewsCred publisher network.