Manufacturers in Minnesota and neighboring states expect a strong year ahead

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Manufacturers in the region have announced a generally strong 2021 and expect more growth this year – if they can just find the necessary workers.

A new report from the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development (DEED) found a largely optimistic outlook among more than 400 manufacturers in Montana, the Dakotas, Minnesota, Northeast western Wisconsin and Upper Peninsula of Michigan; about half of those surveyed were Minnesota businesses.

“Businesses are pretty optimistic and on average expect 2022 to come to 2021 or better,” said Joe Mahon, regional director of outreach at the Minneapolis Fed.

Nine out of 10 manufacturers surveyed in November and December say orders, production levels and employment will remain the same or higher this year.

The overall positive outlook comes as manufacturers grapple with a trio of related issues – labor availability, supply chain issues and declining profits due to higher costs.

While the pandemic is often blamed for labor shortages, the problem has been growing for years, said Ron Wirtz, regional director of outreach at the Minneapolis Fed.

“It’s a pre-pandemic issue to begin with,” Wirtz said. “Employers are responding by aggressively raising wages.”

A third of manufacturers surveyed said they had increased wages by 6% or more, just below the rate of inflation. Most have raised wages between 3% and 5%.

Raw material shortages topped the list of supply chain issues, followed closely by supplier and labor issues.

“Some of the most difficult materials to find today are plastic resins and plastic inputs, as well as certain metals and semiconductors,” Mahon said.

Rising costs of doing business – from wages and shipping to materials and energy – have dampened profits even as business boomed largely last year. Two-thirds of respondents say earnings will be flat or lower this year, and almost all expect inflation to continue to rise.

Yet most see economic growth on the horizon.

“Despite the setbacks of COVID-19, inflation and labor shortages, manufacturers are finding ways to maintain momentum on their job sites,” DEED Commissioner Steve Grove said in a statement.

The outlook is not uniformly cheerful. In a separate Minneapolis Fed survey covering all industries in the region, small businesses had weaker outlooks for the year and saw more revenue declines than larger businesses.

“Minority- and women-owned businesses continue to show worse overall revenue trends,” Wirtz said, in part because these businesses tend to be smaller. “When things got more positive, they also dragged on.”

Supply chain and pandemic-related volatility will remain a factor, with some sectors being hit harder than others, he said.

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