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Manufacturing crashed in 2009; small bounce expected in 2010

January 1, 2010


photo of Toby Madden

Toby Madden Regional Economist

Manufacturing crashed in 2009; small bounce expected in 2010

Manufacturing activity declined significantly in 2009 across the Ninth District. Manufacturers’ outlook for their operations in 2010 is for a small bounce back, but they expect the overall economy to fall further, according to the November survey of manufacturers conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development.

Manufacturers were blown away in 2009. “The economy is terrible,” noted a small Minnesota manufacturer. A whopping 72 percent of respondents said orders were down in 2009 from 2008. Two-thirds sliced production, and 61 percent cut employment. Manufacturers also cut investment and product prices. Profits fell as well. “I’ve been in business for 33 years and now face losing it,” said another small Minnesota manufacturer. The dismal results were evident across states and sizes of firms. “We are struggling to survive and may not make it,” a small South Dakota producer said.

Many manufacturers are experiencing tighter credit: 28 percent reported that their access to bank credit deteriorated over the past three months, and only 9 percent said credit conditions improved. “We were dropped by our bank of 10 years even though we were never late on any payment. Our sales and profits are down, and we no longer ‘fit’ their risk tolerance, which they blame on tighter scrutiny by the Federal Reserve,” said a medium-sized Wisconsin firm.

Compared with 2009, manufacturers’ outlook for orders and production are up (see chart). However, they expect to keep employment, investment and prices at 2009 levels. “We are keeping the door open and waiting for an upturn in the economy,” a Montana medium-sized producer said. Manufacturers expect productivity and profits to edge up in 2010 from 2009 levels. Meanwhile, after dropping in 2009, respondents believed exports will increase slightly in 2010, led by Minnesota and South Dakota exporters.

Manufacturing activity was way down in 2009 and should increase slightly in 2010

Large Chart

Even though respondents expect their own businesses to recover somewhat, they anticipate continued deterioration in their state economies. “Hold on to your hat; this is gonna be a tough one coming!” said a small Montana manufacturer. Respondents anticipate downturns in business investment, employment, corporate profits and consumer spending, and they believe overall economic growth will be flat. Respondents from the Dakotas are the most optimistic, and those from the Upper Peninsula of Michigan are the most pessimistic for their state economies. Over half of respondents expect increased inflation levels in 2010 from the tepid inflation of 2009. 

Manufacturing survey data [xls]

Ninth District Manufacturing Business Conditions Survey Methodology – November 2009