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Ninth District manufactured exports retrench in 2016

July 10, 2017


Ashwini Sankar Research Analyst
Ninth District manufactured exports retrench in 2016

Exports from the Ninth District declined 6 percent to about $42 billion in 2016. The falloff from the previous year was greater than that of the nation as a whole, which saw foreign sales drop by 4 percent. Reduced shipments in major district export industries such as machinery and computer and electronics products drove the overall decline. Among the bright spots in a generally dour export scene were increased exports to parts of Asia and an uptick in exports from Montana.

Last year’s slump was the second year running of weak exports following several years of growth in the wake of the Great Recession (Chart 1). Exports fell in all district states. Wisconsin and Minnesota, which together account for 90 percent of the region’s sales abroad, saw shipments fall by 6.8 percent and 4.5 percent, respectively. Exports from North Dakota fell 6 percent, while South Dakota exports dropped 13 percent. Only Montana bucked the downward trend; exports from the Treasure State grew by just under half a percentage point.

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As has been the case for several years, a strengthening U.S. dollar has made American manufactured goods more expensive in much of the rest of the world. At the same time, economic growth in some parts of the globe, notably China, Europe and Central America, has slowed markedly. Both factors have depressed sales in foreign markets.

The top five export industries from the district struggled against these trade headwinds in 2016 (Chart 2). Machinery―comprising equipment used in agriculture, construction, electrical transmission and other economic sectors―is the district’s single biggest export industry, accounting for almost one-fifth of exports from the region. Machinery exports fell 13 percent, a decline similar to the one seen in 2015.

Oil drilling and production up in the Bakken*
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A drop in shipments of agricultural and construction machinery, the biggest component of machinery exports, was a big factor in the decline of machinery exports. Exports in this category fell by almost half a billion dollars in 2016. A decline in global agricultural commodity prices over the past three years, in tandem with the strong U.S. dollar, has led farmers in major agricultural regions to cut back on purchases of farm implements made in the district.

Minnesota and Wisconsin dominate computer and electronic products, the district’s second-largest export industry, and a sizable drop in exports from those states drove down overall district exports of those products 8.6 percent year over year. Wisconsin’s computer and electronics exports fell 12 percent. Other district states also recorded export declines in this category.

Most regions of the world are experiencing slow growth, reducing demand for disk drives, circuit boards and other computer electronic products. Economic growth in China, the top export destination for district manufacturers of these products, has slowed in recent years. Last year, the country’s computer and electronic imports fell from both the district and the United States as a whole; district exports to China fell by 2.4 percent.

Other district exports, such as chemicals, suffered smaller declines last year, and food and kindred products—a category that includes processed food and animal feed—eked out a small increase in sales to other countries.

In most of the world, a tough sell

Manufactured exports from the district shrank across the globe, with the notable exception of the Asian newly industrialized economies (Asian NIE) region, comprising Hong Kong, Singapore, South Korea and Taiwan.

Exports sales to Canada, the district’s largest export destination, fell sharply (Chart 3), largely due to a dropoff in northbound shipments of machinery, the single biggest category of exports to Canada. Machinery exports fell 12 percent, mainly because of a decline in exports of agricultural and construction machinery.

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All district states experienced a drop in exports to Canada except Montana, which saw exports surge mainly due to increases in the state’s leading Canadian export industries―beverages and tobacco, and transportation equipment. Exports of beverages and tobacco products to Canada rose by 50 percent; however, almost all of this growth stemmed from increased exports by a tobacco products packaging and distribution center in Shelby that ships its entire production across the border.

Montana almost tripled its exports of transportation equipment to Canada, its biggest customer for such products, helping to buoy the state’s overall export performance. Aerospace products and parts made up the largest share of the increase in transportation-related exports to Canada and other countries. Boeing acquired a Helena manufacturer of aircraft parts in 2010, expanding its presence in the state and contributing to increased sales of aircraft components to foreign buyers.

Exporters to Europe, the second-largest importer of district goods, fared somewhat better than manufacturers shipping to Canada, although sales to the European Union and other countries in Western Europe declined about 3 percent. Exports of machinery, the largest category of sales to Europe, fell 8.5 percent. As in the rest of the world, lower exports of agricultural and construction machinery were responsible for most of that decline.

But district exports to Europe got a lift from sales of transportation equipment, which grew by 8.4 percent. Exports of aerospace products and parts, which constitute more than half of all transportation equipment sales to Europe, grew by one-fourth. The United Kingdom and France were the top two European customers for district-made aerospace products.

The United States is one of the biggest producers of aerospace products in the world. Nationwide, aerospace exports increased 1.6 percent in 2016, continuing steady growth since 2011. A global rebound in air travel since the Great Recession and higher airline profits thanks to cheap jet fuel have boosted overseas sales of aerospace products.

Among the top 10 destinations for district exports, the only one to post year-over-year growth was the Asian NIE region. This group of burgeoning economies is the fourth-largest importer of district manufactured goods. Even though machinery exports to this region declined, exports of transportation equipment exports increased 65 percent. More than half of those exports were motor vehicle parts, and shipments of motor vehicle components to the NIE region quadrupled.

Minnesota is the top exporter of motor vehicle parts to this region, and South Korea is the top NIE importer of U.S. auto parts. A free trade agreement between the United States and South Korea went into force in 2012, and South Korea’s domestic vehicle production has boomed in recent years.

As goes exports …

The slowdown in district exports likely dampened manufacturing activity in the region in 2016, continuing a two-year trend. Creighton University conducts a monthly survey of supply managers in mid-America states, including Minnesota, North Dakota and South Dakota. The surveys indicate that manufacturing activity was weak in those states for most of 2016, although there were signs of renewed growth in the sector in December.

In addition, manufacturing employment in the district either fell or grew weakly over the course of the year. Manufacturing employment in Minnesota and Wisconsin was flat, mirroring manufacturing jobs nationwide, and manufacturing employment fell 3.5 percent in North Dakota. The only district state that posted a jobs increase was Montana; manufacturing employment there grew 1.8 percent, slightly more than in 2015.

Among district states, manufactured exports vary as a share of state manufacturing GDP, ranging from about one-third in Montana and South Dakota to 60 percent in North Dakota.