Minnesota, Midwest factory conditions plunge because of coronavirus

A key index measuring factory conditions in Minnesota and across the Midwest plummeted to record lows in March as many producers reported that the coronavirus crisis created major shipping problems, forced workers home and shoved confidence levels to new lows.

Although the Midwest experienced a deeper drop, the slowdown exists across the nation, according to closely watched economic reports released Wednesday.

The Mid-America Business Conditions Index for Minnesota and eight other central states fell to 46.7 from February's 52.8, according to Creighton University, which produces the report. Anything under 50 indicates a contraction.

Minnesota's index plunged to 45.5 from 53.3 in February as new orders and sales, employment and inventory levels fell to levels not seen since the 2008 recession.

Economists are paying attention, especially since the nine-state region had been recovering after a bumpy end to 2019.

On the national front, the Institute for Supply Management reported Wednesday that its producers index fell to 49.1 in March from 50.1 in February.

All indications are that factories will continue to see dips in productivity.

"I expect negative impacts for manufacturers to worsen in the next month since almost two-thirds of supply managers reported that the coronavirus produced shipping problems to and from vendors," said Ernie Goss, director of Creighton University's Economic Forecasting Group.

Additionally, "eight of 10 supply managers reported that the coronavirus had caused the cancellation of business meetings, and 54.3% indicated that the virus had produced worker absences for the month."

The surveyors and manufacturing experts concede that America's manufacturing sector was less impacted than other industries such as stores, restaurants and bars. However, the sector did not escape as demand for products dropped and states started to restrict certain business.

Timothy Fiore, chair of ISM manufacturing index committee, said that "things got worse" for U.S. manufacturers as March dragged on. He predicted that the national index will signal more weakness in April.

New orders, imports and factory employment fell last month to the lowest level since 2009 across the country. Production and export orders also fell.

"Manufacturing is not, for the most part, in the very front line of the virus hit, but nonetheless large swathes of the sector are vulnerable as consumers cut back on spending on goods, especially big-ticket items like cars and trucks," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a research report. He added that "while this headline ISM reading is a pleasant-looking surprise, don't be fooled."

Between the second and third week of March, Minnesota's first-time unemployment insurance claims expanded 29-fold as companies started to shut down businesses because of stay-at-home instructions and large decreases in demand for nonessential products.

Nationally, private payrolls dropped in March for the first time in 2½ years, likely as businesses shut down in compliance with strict measures to contain the coronavirus epidemic, supporting economists' views that the longest employment boom in history probably ended last month.

The ADP National Employment Report on Wednesday showed private payrolls fell by 27,000 jobs last month, the first decline since September 2017, after advancing by an unrevised 183,000 in February. The payrolls drop last month was concentrated among small businesses, while larger companies added workers.

"All signs point to a labor market in crisis, and the widespread impact from COVID-19 will cause disruptions to the economy and everyday life unlike anything ever seen before," said Dante DeAntonio, an economist with Moody's Analytics.

Manufacturing shutdowns in March were led by the Big Three automakers temporarily closing factories.

Among Minnesota companies, recreational vehicle makers Polaris and Winnebago temporarily shut plants and suspended production because of the COVID-19 outbreak that drove consumers indoors and forced millions of office workers to work from home.

The virus caused shipping delays across the Mid-America region — which also includes Iowa, North Dakota, South Dakota, Missouri, Kansas, Nebraska, Oklahoma and Arkansas — and prompted several producers to tear into existing inventories, even as they raced to switch from overseas or distant suppliers to companies much closer, the Creighton report said.

While some companies have retooled to meet health care needs such as face shields, masks or ventilators, others are still cutting back. On Wednesday, Doosan Bobcat announced it will shut its loader, excavator and parts factories in Litchfield and North Dakota from April 6 to April 20 and its North Carolina portable-power factory starting April 4 because of the virus.

Maplewood-based 3M announced in January that it was cutting 1,500 jobs worldwide as it braced for a slowdown in the auto and aerospace industries and an ongoing slowdown in China. It is not clear how many job cuts took place in March.

In the midst of 3M's restructuring, as the coronavirus spread, 3M continually increases production levels at factories making its N95 respirator masks and other necessary items during the outbreak. 3M respirator plants are now running 24 hours a day, seven days a week, including those in Aberdeen, S.D., and Valley, Neb.

3M will further increase its monthly U.S. production of the masks from 35 million to 50 million masks by June, CEO Mike Roman said on Tuesday.

This report includes material from the Associated Press and Reuters.