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Manufacturers in Minnesota, Midwest expect 2017 to trump 2016 -StarTribune.comPage 1 of 2
BUSINESS
Manufacturers in Minnesota, Midwest
expect 2017 to trump 2016
Early surveys of industry leaders are optimistic after a tough year
By Dee DePass(http://www.startribune.com/dee-depass/10644746/) Star Tribune
DECEMBER 19, 2016 — 12:10PM
Factory heads in Minnesota and the rest of the Midwest are ready for 2016 to be over.
Pressure from the strong U.S. dollar coupled with soft oil, mining and agriculture sectors
meant tough conditions across the board. Add in some nervousness because of a pending
presidential election and optimism was tepid.
Enter 2017. U.S. manufacturers say on surveys they are upbeat and cautiously optimistic
about the new year. Bad trends will reverse themselves and positive trends — such as
efficiency gains, infrastructure spending and improved pricing for oil and iron ore — will
gain momentum, according to national and Midwest surveys.
“Manufacturers have continued to struggle. But moving forward, manufacturing leaders
are cautiously optimistic about demand and production for 2017, and we would expect
that this increase in activity would lead to additional hiring” in the United States, said
Chad Moutray, chief economist of the National Association of Manufacturers. “We also
expect construction investment to improve as we move into 2017, especially given
strengthening demand and better confidence figures.”
Creighton University’s nine-state Mid-America Business Conditions Index measures
activity on a 50-point scale. Anything above 50 means it’s growing. For confidence, the
number looking ahead six months went from a frail 39.7 in October to 61.6 in
November.
During interviews summarized in the Dec. 1 report, supply managers repeatedly echoed
the sentiment: “So glad the election is over. Let’s go to work,” said Ernie Goss, economic
forecasting director for Creighton.
(http://stmedia.startribune.com/images/ows_148193553290739.jpg)
KYNDELL HARKNESS
“Looking into the crystal ball for 2017, you would have to say that the manufacturing
Denise Schmidt tested a product in a
linked to energy is looking somewhat better,” he said.
Chanhassen facility of Emerson Automation
Solutions, which should benefit from a likely
That’s because OPEC vowed to cut oil production by 1.2 million barrels a day — a first
in eight years. With curbed output, prices will rise and revive orders for equipment and
supplies, he said. That should help firms such as Donaldson Co., Ecolab, Pentair, Atek
and Emerson Automation Solutions’ test and monitor equipment plants in Shakopee,
Chanhassen and Eden Prairie. Even firms like 3M Co., which makes safety equipment,
could benefit.
(http://stmedia.startribune.com/images/ows_148193552637020.jpg)
Employee making an Emerson Rosemount
Job No. 1 for manufacturers: finding qualified workers for the positions available.
Wireless Pressure Gauge in Chanhassen, Minn.
Although plants lost 4,000 jobs in November, for a total of 60,000 U.S. manufacturing
The product helps oil and gas producers
jobs lost in 2016, companies can’t find enough people to replace retiring baby boomers
who are trained for the more complicated jobs in today’s automated factories.
The latest Manpower survey found that 15 percent of U.S. employers, including
manufacturers, hope to add workers in the first quarter. About 75 percent expected
employment to remain stable.
Employment aside, manufacturers say they expect other challenges in 2017, such as
sluggish crop and ag equipment spending, a strengthening dollar, rising interest rates and
inflation. But economists believe they will see some relief in 2017 as global economies
improve and promises from President-elect Trump’s administration fall into place,
industry experts say.
“We will be looking for signs of progress on the \[U.S.\] export front. Net exports were a
bright spot in the most recent GDP data for the third quarter,” Moutray said.
U.S. exports were squeezed by the high U.S. dollar and limping demand from Canada,
China and Brazil. (Minnesota exports fell 2 percent or $124 million during the third
quarter after plunging a respective 8 and 5 percent during the previous two quarters.)
The combined woes meant manufacturing executives spent much of 2016 downshifting
profit forecasts that turned out to be overly optimistic.
But now, “we are seeing increasing signs of a synchronized rebound in the global
economy, particularly in developed markets, that we believe goes beyond a U.S. election
relief rally or the promise of a Trump-driven fiscal stimulus package,” said Scott
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Anderson, Bank of the West chief economist. “The promise of a significant fiscal
stimulus package in the United States should help boost U.S. growth in the second half of
2017, allowing GDP growth to accelerate from an estimated 1.6 percent in 2016 to 2.2
percent in 2017.”
If true, U.S. foundries, metal stampers, machine and electronics plants may enjoy a
comeback from the slump in durable goods that hurt makers of appliances, machinery
and transportation equipment for much of 2016.
Another boost could materialize if Trump fulfills promises for major road, bridge and
rail infrastructure spending.
“It’s not hard to see how modernizing our energy and transportation infrastructure will
create good-paying American jobs,” said National Association of Manufacturers CEO Jay
Timmons.
Separately, U.S. factories will benefit if Trump follows his pledge to slash taxes on
repatriated corporate earnings from overseas. If a one-time tax-cut materializes, “3M,
Cargill and other companies that are important to Minnesota will certainly bring those
earnings back home to the U.S.,” Goss said. “Some of that will result in new corporate
spending in the second and third quarter of 2017. And some of it will go into paying
corporate salaries, dividends to shareholders and buying back company stock.”
Donaldson CFO Scott Robinson told analysts in December that the industrial filtration
giant “would be glad” to take advantage of policy changes that helped corporations bring
cash back into the U.S. “It’s certainly something we think about a lot.”
Still, Donaldson CEO Tod Carpenter isn’t moving the needle just yet on sales and profit
expectations.
Donaldson “is maintaining a cautious stance,” Carpenter said. “Our assessment of the
overall environment remains somewhat mixed as recent signs of stability within our
business are not yet translating to meaningful improvements in end-market conditions.”
Carpenter predicts Donaldson’s sales could rise or fall 2 percent in 2017.
Other producers are also cautious. In October, Maplewood-based 3M Co. narrowed its
earnings forecast for full 2016, even though officials expect to see improvements soon in
select businesses.
“We do expect our industrial and our electronics and energy \[group\] to have improved
Putting Numbers to It
growth rates in 2017 vs. what we have been seeing in 2016,” 3M CFO Nick Gangestad
Expectations from the Institute of Supply
recently told investment analysts during a presentation.
Management (ISM) project positive
3M industrial business head Mike Roman said growth opportunities exist for 3M
manufacturing growth in 2017:
products aimed at auto, aerospace and automation customers.
Outlook in Outlook in non-
“Market cycles that have been a headwind for us in 2016 start to moderate and even
improve as we move into the new year,” Roman said. “Our product sales into oil and gas manufacturing manufacturing
are stabilizing. Our defense business is improving and our demand for our specialty
Revenue to increase 4.6% 4.1%
polymers is increasing.”
Capital expenditures to Increase 0.2%
Decrease 0.2%
Capacity utilization currently at 81.9%
85.2%
dee.depass@startribune.com612-673-7725DePassStrib
Source: Dec. 8, 2016, ISM Business Survey
Committee’s 2017 manufacturing forecast
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