State index of business conditions hits new low

Minnesota's manufacturing sector remains in intensive care, based on employment levels and new orders. Yet many executives are expressing optimism that their manufacturing companies will survive the steep downturn.

One gloomy report and one guardedly optimistic survey of Minnesota manufacturers were released Monday. Together, they offer a mixed picture about the duration and severity of the recession.

Minnesota's "business conditions index," a survey of supply managers, fell to 30.1 in January, a record low since the survey was begun in 1994 by Creighton University in Omaha. A business conditions index above 50 indicates growth. In December, the number was 32.2.

"We don't have a global economy to pull us through," said economist Ernie Goss, who forecast that Minnesota's jobless rate will exceed 8 percent by the end of the second quarter. In December, the Minnesota unemployment rate was 6.9 percent while the national rate was 7.2 percent.

Goss noted a weakness in a variety of businesses ranging from durable goods manufacturing to telecommunications.

The Creighton study became public on the same day that a comparable national study, released by the Institute for Supply Management, reported that economic activity among manufacturers "failed to grow in January for the 12th consecutive month." The monthly benchmark surveys track the ailing manufacturing industry through the eyes and data available to supply executives.

But a somewhat rosier perspective surfaced in a "State of Manufacturing" survey produced for the first time Monday by Enterprise Minnesota, a nonprofit group funded by business clients and the federal government.

'Cool heads'

In that survey, 400 Minnesota manufacturing executives were polled by a Washington, D.C., firm, and 56 percent of those surveyed believe the United States will be in a recession during 2009.

But despite the tough times, 79 percent of those Minnesota leaders "are confident in their companies' future financial security," said pollster Rob Autry.

"They have pretty cool heads because they have been through down economies before," said Bob Kill, CEO of Enterprise Minnesota, the nonprofit that previously received state funding and was chartered by the Minnesota Legislature.

About one-fourth of the Minnesota manufacturing executives said they think their companies will increase revenue this year.

Kill said that the Enterprise Minnesota survey may be more upbeat than the Creighton survey because supply managers may be focused more on short-term statistics. Executives who've done layoffs recently may believe that they've positioned their companies to operate efficiently as orders pick up, Kill said.

He added that some executives are using the slowdown to retrain their employees, retool their plants and reexamine supply-chain relationships, and they are using a longer-term outlook to assess the future.

"I just don't have that unflappable optimism," Goss said. "They are business people and manufacturers for a reason. If they were truly pessimistic, they'd be economists." During the 2001 recession, the Minnesota index number plunged to its former low of 32 in the Creighton survey in March 2001.

In Minnesota, Gov. Tim Pawlenty, legislators and businesspeople were given results of the Enterprise Minnesota manufacturing survey on Monday. About 8,500 manufacturing companies are in the state. The vast majority employ fewer than 100 people.

To move their businesses forward, companies need access to credit. The survey showed that only 13 percent of executives said they were "very concerned" about the availability of capital to run their businesses.

"They haven't seen the door slam shut," Kill said, adding that some financial institutions, including Bremer Bank, have increased their communication with manufacturers as the industry battles the recession.

Liz Fedor • 612-673-7709