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Regional manufacturers expect continued growth in 2019

The 2018 Manufacturing Survey results reflect responses from more than 450 manufacturing operations of various sizes across the Ninth District's six states

January 14, 2019

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Regional manufacturers expect continued growth in 2019

Despite facing some headwinds, Ninth District manufacturers experienced solid growth in 2018. Moreover, their outlooks for the year ahead call for similar growth, according to a survey conducted in November and December by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development.

The survey results reflect responses from more than 450 manufacturing operations of various sizes across district states. Respondents reported increases on average in almost all of the business indicators covered in the survey, with the exception of profits, which were flat. A summary index reflects key survey results, representing changes in activity from 2017 to 2018, and 2019 expectations compared with 2018 performance (Chart 1).

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Customer demand rose, as more than half of respondents noted increased orders in 2018 compared with the previous year. Likewise, a similar proportion reported that production at their operations grew. Meanwhile, fewer than a fifth said that orders or production fell in 2018. About three in five manufacturers increased the prices charged for their products. Productivity also climbed; however, profits were flat overall, with nearly equal proportions of respondents reporting profits increased, decreased, or were unchanged.

Investment and employment at factories also increased, on balance. Just under half of respondents said they had increased investment in facilities and equipment, with an equal proportion reporting no change in investment. Two in five firms added employees, compared with only 15 percent that reduced employment. Several comments noted that limited labor availability restrained hiring, which may have resulted in faster reported compensation growth over the past year than in previous years. More than half of respondents reported raising wages by 3 percent to 5 percent in 2018, though increases in benefits were milder.

Turning to 2019, manufacturers had an optimistic outlook, generally expecting similar growth over the coming year to the previous one. Respondents anticipated increases across the board, with positive expectations for every indicator.

In addition to product prices, which 54 percent of respondents expected to rise, prospects were strongest for productivity and orders, with nearly half expecting increases. The outlooks for productivity and investment were also positive, and, after a flat 2018, firms expected profits to rise as well.

More than a third of manufacturers planned to increase employment at their operations in 2019, while only 8 percent anticipated layoffs. Wages and benefits were expected to increase roughly on pace with the past year.

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How have U.S. tariffs and/or foreign countermeasures affected your business in the last year?
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Because of many reports in the past year of supply chain and other disruptions due to the ongoing international trade conflict, a special question on this year’s survey asked about the impact of tariffs on business operations. The majority of manufacturers—85 percent—reported no effect from U.S. tariffs for employment, and 77 percent reported no effect on capital expenditure. However, 55 percent reported negative effects on input costs, with a similar percentage reporting negative effects on costs to consumers (Chart 2).

Manufacturers’ optimism for their operations also extended to their state economies. A strong majority expected state employment, business investment, consumer spending, corporate profits, and overall economic growth to increase or remain unchanged over the coming year (Chart 3).

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However, inflation is a concern, as nearly two-thirds of respondents predicted that inflation would rise, while only 1 percent expected it to fall in 2018.

Manufacturing survey data

Total (454 Responses)

Business indicators in 2018, compared with 2017:

  Up Same Down Diffusion
Index*
Number of orders 55% 25% 19% 68
Product/service production level 54% 31% 15% 69
Employment level 40% 45% 15% 63
Investment in plant/equipment 44% 43% 13% 66
Prices 57% 36% 7% 75
Profits 35% 33% 32% 51
Productivity 40% 47% 12% 64
Exports 27% 56% 17% 55
  Decrease 0% 1%-2% 3%-5% 6%-10% >10%
Wages per worker 1% 8% 24% 57% 7% 3%
Benefits per worker 1% 28% 22% 33% 8% 8%

Expected business indicators in 2019, compared with 2018:

  Up Same Down Diffusion
Index*
Number of orders 49% 41% 10% 69
Product/service production level 45% 48% 7% 69
Employment level 35% 59% 7% 64
Investment in plant/equipment 35% 52% 13% 61
Prices 54% 42% 5% 74
Profits 41% 42% 17% 62
Productivity 48% 46% 7% 71
Exports 27% 61% 12% 58
  Decrease 0% 1%-2% 3%-5% 6%-10% >10%
Wages per worker 1% 9% 29% 56% 3% 2%
Benefits per worker 1% 28% 26% 35% 7% 4%

What is your outlook on the following state economic indicators during 2019:

  Up Same Down Diffusion
Index*
Business investment 34% 55% 11% 62
Employment 35% 56% 8% 64
Consumer spending 31% 52% 17% 57
Inflation 65% 33% 1% 82
Economic growth 35% 50% 15% 60
Corporate profits 27% 54% 19% 54
Notes
* A number above 50 indicates expansion; a number below 50 indicates contraction. The index is computed by taking the percentage of respondents that reported "up" and half the percentage of the respondents that reported "same."
Percentages may not add to 100 due to rounding