MINNEAPOLIS, March 12, 2004—The cloud hanging over the manufacturing sector began to dissipate as the economy continued to expand through 2003, according to a recent survey conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development. Ninth District manufacturers reported increased productivity, prices, production, and stable employment in 2003. This improvement occurred in most areas of the district and in businesses of all sizes and is expected to continue in the first half of 2004.
“The weak dollar enlarged the relative costs of foreign production and made Ninth District production more competitive for sales both here and abroad,” noted Toby Madden, regional economist at the Minneapolis Fed. “In addition, upticks in overall business investment and consumer spending created additional demand for manufactured products.”
Producers noted a strong pickup in new orders during the second half of 2003 and expect rapid growth in the first half of 2004. The greatest increase in new orders was reported by large businesses and businesses located in the Dakotas. In response to the new orders, manufacturers ramped up production and prices. The increase in production has strained capacity somewhat, and businesses are reacting by increasing investment in plant and equipment. In addition, productivity increases were expected across the district. The increased production, prices and productivity should translate into higher profits in 2004. However, the increase in productivity dampened the need for workers, as manufacturers expected only slight increases in employment.
“Despite widespread optimism, there are small potholes on the road to manufacturing recovery,” Madden said. “For example, in the second half of 2003, respondents reported lower profits in North Dakota and Minnesota and small price decreases in western Wisconsin. In addition, a slight decrease in employment is expected in the Upper Peninsula of Michigan for the first half of 2004.”
While economic indicators are up for the most part, some manufacturers voiced concerns international trade and the rising costs of health care benefits.
The survey elicited 682 responses from 2,887 randomly selected manufacturing companies in Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Minnesota Department of Employment and Economic Development conducted the Minnesota portion of the survey.
As one of the 12 Federal Reserve Banks, the Federal Reserve Bank of Minneapolis contributes to a variety of Federal Reserve System functions, including operation of a nationwide payments system, distribution of the nation’s currency and coin, supervision and regulation of member banks and bank holding companies, and serving as a fiscal agent for the U.S. Treasury. Additionally, the president of the Minneapolis Fed serves as a member of the Federal Open Market Committee, the monetary policymaking arm of the Federal Reserve’s Board of Governors.