Minneapolis Fed survey contains hint of optimism

Minneapolis Fed survey contains hint of optimism The Ninth District manufacturing industry continues to struggle, but it appears that 2003 will be slightly brighter and produce increased business activity. These are results of a recent survey of manufacturers conducted by the Federal Reserve Bank of Minneapolis. The Minnesota Department of Trade and Economic Development conducted the Minnesota portion of the survey.

The majority of manufacturers reported a dismal second half of 2002 with decreases in orders, production, employment, investment and profits. However, there is some optimism for the first half of 2003 with an expected uptick in orders and production, combined with level investment and employment activity. This comes despite the fact that manufacturers expect the regional economy to struggle with higher inflation and lower investment and employment.

Although results across the district were very similar, western Wisconsin respondents were the most optimistic, while responses from Minnesota reflected a less rosy outlook. "The manufacturing sector is in a recession regardless of what economists say," commented one Minnesota manufacturer.

During the second half of 2002, employment and profits decreased significantly from the first half of last year. This was true for all states in the district and for all but large employers, who saw level employment and slight increases in profits from the first half of 2002. Several manufacturers commented that the reduction in profits was due to stiff foreign competition and higher input costs.

Orders and production were level in the second half of 2002 compared with the first half. Wisconsin, North Dakota and Montana companies saw increases, while producers in Minnesota, South Dakota and Michigan's Upper Peninsula reported weakened production. At the same time, large employers noted increases in orders and production, while smaller companies saw some declining output.

Overall, businesses are cautiously optimistic about their prospects for the first half of 2003. Manufacturers of all sizes across the district expect strong growth in orders and production in the first half of 2003 compared with the second half of 2002. Employment and investment is expected to decrease slightly, however, for small firms in Minnesota, Montana and South Dakota, but rise slightly in medium and large firms in North Dakota and western Wisconsin.

Despite a somewhat positive outlook by manufacturers' about their own businesses, they are more pessimistic about the outlook for the overall regional economy. Their seemingly conflicting responses may reflect the overall uncertainty facing the U.S. economy. Manufacturers across all employment categories and geographic areas anticipate decreased district employment and consumer spending, and most also predict decreased investment in the first half of 2003 compared with the last half of 2002. Meanwhile, increased inflation is a concern as producers in all areas of the district expect higher overall prices in 2003.

The survey, prepared by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Trade and Economic Development's Office of Analysis and Evaluation, elicited 539 responses from 2,256 randomly selected district manufacturers. The sampling error is +/- four percentage points. See complete survey results.

As one of 12 regional Reserve banks that serve as the nation's central bank, the Federal Reserve Bank of Minneapolis is responsible for making and carrying out monetary policy, supervising and regulating banks and bank holding companies, and providing financial services to depository institutions and the U.S. Treasury.

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