fedgazette

District manufacturers optimistic about 2018

Joe Mahon | Director, Regional Outreach

Published January 8, 2018

Following a strong performance in 2017, Ninth District manufacturers are expecting continued growth in the coming year, 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.

Respondents on average reported increases last year for all of the business indicators covered in the survey, sent to manufacturing operations of various sizes throughout the district. About 450 firms responded to the survey. Most survey results are summarized as an index representing changes in activity from 2016 to 2017, and 2017 activity versus expectations for 2018 (see chart).

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More than half of respondents noted increased orders and production in 2017 compared with the previous year, and nearly half said their operation had increased investment in facilities and equipment. By contrast, a fifth or less said that orders, production or investment fell in 2017. Prices of goods and productivity also increased, while there was little change in profits and exports. More than half of respondents reported no change in exports in 2017, while there were roughly equal shares of those who saw either increased, flat or smaller profits.

Factory employment was up as well, according to the survey; 39 percent of respondents indicated that they had added staff, compared with one-sixth who reported reduced employment. Wages increased about 3 percent on average during the year, with similar growth in employee benefits.

The outlook for 2018 is upbeat, with more respondents predicting growth than were expecting contraction this year. Orders, total production and exports were expected to increase. Companies forecast greater productivity and profits, as well as higher prices for their goods. Capital investment was also expected to increase.

Though multiple comments indicated ongoing concerns about labor scarcity, 44 percent of firms surveyed planned to increase employment over the next year; less than 10 percent intended to reduce staff. The outlook for wage increases was roughly similar to the increases that firms reported for 2017.

The results of a special question on the survey (see table) suggest that many district manufacturers see investing in automation as one solution to a tight labor supply.

Nearly a third of respondents said they had increased automation at their firms over the past year in order to mitigate labor shortages, and a similar share said they did so in order to reduce labor costs. The largest share—45 percent—said that automation was increased to boost productivity, while 39 percent of respondents indicated that their operations had not become more automated.

Firms’ optimism about their own performance was mirrored by a positive view of the economic outlooks for their respective states. The majority of respondents expected their state economies to grow and foresaw increased employment, business investment, consumer spending and corporate profits over the coming year. Inflation remains a concern, though; 57 percent expect inflation to rise, while only 2 percent foresee lower inflation.

Table
Indicate if automation in your company has increased over the past year due to the following reasons
Increase productivity Reduce labor cost Mitigate labor shortages Improve product quality Improve worker safety Other No increased automation
45% 30% 31% 29% 24% 3% 39%

Manufacturing survey data

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