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Manufacturers cautiously optimistic for second half of 2003

Summer 2003 Survey of Ninth District Manufacturers

Benjamin Knelman - Edina High School, Edina, Minnesota
Toby Madden - Regional Economist

Published November 1, 2003  |  November 2003 issue

The summer 2003 survey of Ninth District manufacturers conveys mixed messages. While many respondents predict continuing growth in production and number of orders, they are not as optimistic about increased employment and profits.

Some overall responses echo the following comment from a small Montana manufacturer: "2003 has been the worst year we've had in 18 years of business." Others reflect what a mid-sized Wisconsin manufacturer says, "We have not seen the downturn that others speak of."

Last year, manufacturers predicted increased orders in 2003—and the current survey confirms that the increase did indeed occur. The survey also shows increased production levels in the Ninth District. However, expanding orders and production do not necessarily translate into increased returns, for yet again the large majority of respondents report falling profits in the first half of 2003, compared with the latter half of 2002. Moreover, as a whole, responding manufacturers seem to expect these trends to continue for the rest of the year.

While growth in orders and production is expected in all states, only in Michigan's Upper Peninsula are profits predicted to rebound during the second half of the year.

Size does matter

Smaller employers are generally more optimistic about second-half results. Business establishments with fewer than 50 employees expect expansion of orders, production, employment and prices, compared to establishments with more than 250 employees. However, where it counts, bigger is better as larger employers anticipate stable profits, while small establishments foresee somewhat falling profits.

Health care and taxes and China, oh my!

In their written comments, respondents indicate a number of disturbing issues. Several commented on recent federal and state tax cuts, but there was by no means a consensus in their opinion regarding those cuts. While businesses would normally unequivocally endorse tax cuts, some respondents express concerns over the impact of rising deficits.

One small company respondent in Montana says that the tax cuts are unaffordable and are wreaking havoc with state finance needs. "The tax cut has not helped," writes a representative of small South Dakota company. "Tax breaks have helped," says a mid-sized Wisconsin manufacturer. Another respondent from a small North Dakota firm declares that "if taxes don't go down … soon, this will turn into a recession again."

Much more unanimous are the comments regarding health insurance costs: They are out of control. A Minnesota respondent describes a three-year 75 percent increase in health care costs and echoes the opinion of a mid-sized Wisconsin manufacturer: "Health care must be fixed—increases in costs are not sustainable." Adds one large manufacturer, also from Wisconsin, "Health insurance costs are forcing us to reduce employees and purchase from Asia."

Which leads to a final subject predominant among the survey's written responses: China. The message from the respondents seemed pretty clear: "Lost jobs more and more to China," writes a Minnesota respondent. "There will be no increase in production and employment as long as jobs continue to be sent to China," states another. A mid-sized South Dakota manufacturer links these challenges to the strong American dollar: "China is killing us. [The] dollar is still overvalued." Though most of the responses decried current trends regarding China, a positive view of Asia's rising importance was also voiced: "[U.S.] corporate profit will rise as more business is outsourced in Asia," states a Wisconsin respondent.

Positive outlook for state economies

Based on responses to questions relating to number of orders, capital investment, employment and profits, overall survey results point to slightly improving general economic conditions across the district during the second half of 2003 (see charts). Responses to other survey questions indicate that manufacturers from all district states anticipate consumer spending and the general economy to grow significantly. Meanwhile, companies from across the district expect inflation to heat up in the second half of 2003.

The Minnesota Department of Employment and Economic Development conducted the Minnesota portion of the survey.

Survey Results | Survey Results [xls] | Survey Methodology

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