Despite significant increases in raw materials prices over the past year, manufacturers reported strong activity in the first half of the year and optimism for the second half, according to a summer survey of manufacturers conducted by the Federal Reserve Bank of Minneapolis and the Minnesota Department of Employment and Economic Development. Ninth District manufacturers reported that orders, production, employment, investment, productivity and prices all grew during the first six months and are expected to continue growing throughout the year. This strength appears widespread across the six-state district and in businesses of all sizes.

"In addition to optimism in the manufacturing sector, respondents expect the overall economy to grow in the second half of 2004," noted Toby Madden, regional economist at the Minneapolis Fed. "Some did, however, express concern about rapid inflation and an air of uncertainty surrounding an anticipated close presidential race."

Across the district, manufacturers' performance improved during the first half of the year. Companies ramped up production to meet an increase in new orders and significantly improved productivity, hired more workers and invested in new equipment. Material input costs increased rapidly, and manufacturers covered these costs by raising prices. However, they barely kept pace with the increased costs and profits grew slowly or fell.

Manufacturers anticipate the momentum to continue. "The bullish outlook for production, prices and productivity is expected to translate into higher profits," Madden said. "Lured by the promise of higher profits, companies plan to increase employment and investment in plant and equipment."

The survey elicited 741 responses from 2,905 randomly selected manufacturing companies in Minnesota, Montana, North and South Dakota, northwestern Wisconsin and the Upper Peninsula of Michigan. The Minnesota Department of Employment and Economic Development conducted the Minnesota portion of the survey. See complete survey results by district state and employment size.

As one of the 12 Federal Reserve Banks, the Federal Reserve Bank of Minneapolis contributes to a variety of Federal Reserve System functions, including operation of a nationwide payments system, distribution of the nation's currency and coin, supervision and regulation of member banks and bank holding companies, and serving as a fiscal agent for the U.S. Treasury. Additionally, the president of the Minneapolis Fed serves as a member of the Federal Open Market Committee, the monetary policymaking arm of the Federal Reserve's Board of Governors.