Ninth District manufacturers were expecting moderate growth in the year ahead despite treading water in 2019, according to a survey conducted from late November to early January by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development.

The survey results reflect information from 351 manufacturing operations of various sizes across district states, which include Minnesota, North and South Dakota, Montana, 26 counties in Wisconsin, and the Upper Peninsula of Michigan.

Most survey results are summarized as an index representing changes in activity from 2018 to 2019, and 2019 activity versus expectations for 2020 (Chart 1).

Respondents reported increases on average in a number of indicators in 2019, particularly in the prices charged for their products and in productivity and capital expenditures, but other indicators were closer to flat on average, and both profits and exports were down from the previous year.

Three firms in five reported that orders had declined or stayed the same. Employment was unchanged at almost half of firms; among the remainder, slightly more reported that employment rose rather than fell at their locations.

Overall production came in stronger, as 38 percent of respondents noted growth in the previous year and a slightly smaller portion reported that it was unchanged. Profitability was perhaps the most sluggish indicator; 39 percent of respondents said that profits fell in 2019, compared with 30 percent who reported that profits rose. Wages grew slightly more than 3 percent on average, with employee benefits increasing between 2 percent and 3 percent, manufacturers reported.

In contrast, the manufacturing outlook for 2020 was much rosier: Respondents anticipated growth across the board this year, with heightened expectations for every indicator compared with last year.

Prospects were strongest for orders, which about half of respondents expected to increase in 2020. The outlooks for production, productivity, and prices were nearly as strong. More than a quarter of manufacturers expected employment to increase at their operations in 2020, while only 7 percent anticipated layoffs. On average, wages and benefits were expected to increase slightly less than last year.

Though still positive overall, expectations were weakest for exports, with 58 percent of respondents expecting no change in the coming year. But the overall rebound in expectations for exports from negative to positive territory could reflect some hopefulness about trade policy.

For the second year in a row, a special question on this year’s survey asked about the impact of tariffs on business operations due to reports of supply chain and other disruptions resulting from international trade tensions. The majority of manufacturers—81 percent—reported no effect from U.S. tariffs on employment, and three quarters reported no effect on capital expenditures. However, 41 percent reported negative effects on input costs, with a similar percentage reporting negative effects on costs to consumers.

The optimism of survey respondents was not restricted to their operations; they were also upbeat about the economic outlooks for their respective states. Most respondents expected state employment, business investment, consumer spending, corporate profits, and overall economic growth to increase or remain unchanged over the coming year (Chart 2).

Inflation remained a concern, with the highest proportion of respondents expecting an increase than for any of the other economic indicators. However, the inflation outlook was more subdued than in recent surveys; three in five respondents expected inflation to remain unchanged in the coming year.