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Solid manufacturing growth but slow economic activity

2007 Ninth District manufacturing survey results

Toby Madden - Regional Economist

Published January 1, 2008  |  January 2008 issue

Manufacturing companies across most of the Ninth District report growth in their operations, but they expect a weak overall economy, according to the November survey of manufacturers conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development.

Manufacturers were busy in 2007: Production was up, but employment was flat. Solid demand continued from 2006 as the number of new orders increased, especially from foreign customers. Productivity increased, with companies adding capital equipment but not employees. In addition, many companies boosted prices. Respondents from Montana and North Dakota reported the largest increase in activity. However, respondents from the Upper Peninsula of Michigan continued to see decreases in orders, production and employment.

Manufacturers expect robust gains in 2008. About half of the respondents expect the number of orders to increase, aided by anticipated strong foreign demand. About a third expect increased exports, and only 10 percent expect decreases. With the increased demand as well as other factors, about half of the producers expect to raise prices. To fill the increased orders, 45 percent of manufacturers plan to boost production through slight increases in employment and capital equipment and strong productivity growth. "Our success is due to major investment in high-tech equipment," said a small Montana manufacturer. Businesses expect more industrial real estate to be available to accommodate new employees and equipment. The bottom line: 40 percent of respondents expect higher profits in 2008. While respondents from the U.P. predict improvement in 2008, they expect overall continued weakness for their own operations.

Even with a bright outlook for manufacturing operations, respondents expect a slowdown in their state economies. "Consumer confidence is down; debt crisis and oil prices are a worry," said a small manufacturer from Wisconsin. About half the producers expect consumer spending to fall, bringing down overall business investment, employment and reducing overall corporate profits. Meanwhile, 64 percent of respondents expect higher inflation.

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