Confidence among Minnesota manufacturers slipped again in December as a strong U.S. dollar continued to batter exports, leaving market watchers wondering when the ramifications of sluggish growth would bleed into the broader economy.
The state continued to unwind progress in the first part of last year, according to a Monday report from Creighton University. Slipping confidence kept Minnesota planted among the worst performers in the Midwest in the monthly survey of supply managers used to gauge the regional business climate.
Minnesota scored 39.4 in Creightonâ€™s Mid-America Business Conditions Index in December, down from 41.1 in November. Values greater than 50 indicate economic expansion in the coming months, while lower scores indicate a shrinking economy.
The state hit its 2015 high mark in July with a score of 54.8 and as recently as September led the nine-state region. But since then, increasingly tough export conditions stifled business for a wide range of manufacturers that rely on international business for growth.
A dollar that strengthened by nearly 10 percent is the main export detractor, said Creighton economist Ernie Goss, who oversees the study. Coupled with a slowing global economy, manufacturers across the Midwest are feeling a squeeze â€“ and ramifications could soon creep into other sectors.
â€śWhile this weakness has yet, to any large degree, [to] spill over into the broader economy in most states in the region, I expect to see this in the first quarter of 2016,â€ť he said.
Plus, the survey points to a recent decision by the Federal Reserve Bank to raise interest rates gradually could further fortify the dollar.
To counteract that risk and stoke new growth, Minnesota manufacturers say they hope todayâ€™s long-term interest rates â€“ still considered low â€“ will fuel new building construction. The brightest spot in the stateâ€™s manufacturing sector lies in the robust medical equipment industry, according to the report.
The overall Midwest growth score sank deeper into negative territory at 39.6 in December, down from 40.7 a month earlier. The skid matches predictions that the lag would continue through the fourth quarter.
Aside from Minnesota, the survey examines conditions in Arkansas, Iowa, Kansas, Missouri, Nebraska, North Dakota, Oklahoma and South Dakota. The results are gathered into a collection of indexes, with scores ranging from zero to 100.
In line with previous months, each of the components of Minnesotaâ€™s index shows a decline over figures from a year ago:
New orders slipped to 34.5 from 68.2 a year ago.
Production or sales dropped to 35.2 from 69.4 in December 2014.
Delivery lead time landed at 47.1, compared with 56.6 a year earlier.
Inventories fell to 37.0, less than the 57.8 posted a year ago.
Employment checked in at 43.4, a drop from 55.3 a year earlier.
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