Pace of growth slows at Minnesota and Midwest factories

August 1, 2018

Midwest manufacturing continued to grow in July, but effects from tariffs and other trade restrictions plus interest rate hikes are starting to slow the pace, Creighton University found.

The widely watched Mid-America Business Conditions Index, which includes Minnesota, fell to 57 in July. It is the second consecutive month that growth has slowed; the index was 67.3 in May and 61.8 in June. In Minnesota, July index declined to 55.8 from 58.8 in June.

Any index above 50 indicates growth, so economists were far from panicked by the results. It’s been 20 consecutive months since economic growth fully contracted across the nine-state region.

“The regional economy continues to expand at a healthy pace with manufacturing growth of approximately 2.6 percent over the past 12 months,” said Ernie Goss, director of Creighton’s Economic Forecasing Growth, which issues the report. “However, I expect expanding tariffs, trade restrictions, and rising short term interest rates from a more aggressive Federal Reserve to slow growth to a more modest, but still positive pace.”

Two-thirds of the factories surveyed said tariffs or other trade restrictions had or will have an effect on their companies.

The factories also said they were dealing with downticks in the region’s exports, new product orders, production and manufacturing employment.

On the plus side, factory delivery times sped up and inventories expanded during the month.

Creighton’s report tracks economic conditions for factories across Minnesota, Iowa, Nebraska, Missouri, Kansas, North Dakota, South Dakota, Arkansas and Oklahoma.

The Creighton University report lands just days after a host of Minnesota-based manufacturers reported rising second quarter revenue and also talked of the escalating fuel and ingredient costs and trade worries.

Medina-based Polaris Industries, which makes off-road four-wheelers, snowmobiles and motorcycles, reported that new U.S. trade tariffs and retaliatory actions by trading partners in Canada, Europe and elsewhere will increase its costs $40 million this year.

Polaris also announced it will move some of its Indian motorcycle manufacturing from Iowa to Poland in an effort to avoid trade tariffs. The production-line move will only affect motorcycles made for European customers, company officials told Wall Street analysts last week.

Officials from 3M Co. and Ecolab told analysts last month that they did well during the second quarter but are increasing product prices to buffer the impact of rising raw material costs and trade tariffs.

Dee DePass • 612-673-7725