Minnesota factories' output up, employment down

Minnesota's factories are churning out lots of products like airplane parts and medical devices these days, but they're not exactly going on hiring sprees.

Earlier in the recovery, Minnesota manufacturing's job growth outpaced the rest of the state's economy. But that growth has slowed. Indeed, non-seasonally adjusted manufacturing employment in Minnesota fell to 308,128 in July, down 0.8 percent from the same month last year. Meanwhile, every other industry in the state's economy is adding jobs.

A clue to the lackluster hiring in manufacturing might be found at a Kurt Manufacturing factory in Fridley, where machines are increasingly taking over the tasks workers used to perform.

One automated system looks like a double-decker bus. It's about 45 feet long, 16 feet high and has two rows of windows, which allow employees to see inside. The system converts bread-box sized aluminum blocks into finished parts, including a component for an airplane wing flap.

"When this part is called for, a cart will come down and pick the palette up and move it into the machine, which will do the machining," said Steve Carlsen, president of Kurt Manufacturing.

No human brawn is necessary, and the machine can run all night and weekend. Eventually, a worker will need to conduct a quality inspection, but the machine can even do some of that itself.

For Carlsen, such automation is part of manufacturing's success story. So he's not very concerned about factory job growth languishing.

"You make the decision," he said. "Do I spend $100,000 on a piece of equipment that can eliminate two people or do I pay them that much annually or more on labor costs and salaries?"

"The way we stay competitive, like it or dislike it, is trying to figure out how to take labor content out of our jobs," Carlsen said.

Economists will be watching to see if manufacturing can keep doing more with less. In the most recent data available from the Bureau of Economic Analysis in 2012, Minnesota factory output still outpaced the rest of the state's economy. That was despite the fact that factory hiring was already growing slower than hiring in other industries.

"We don't see the sector declining despite these reductions in jobs over the past year," said Rob Grunewald, an economist for the Federal Reserve Bank of Minneapolis. "It's still growing, so it's still adding output to our economy."

Still, Grunewald said he will be watching manufacturing to see if recent job loss trends continue. Exports were largely flat between the first quarter of 2012 and the same period this year.

But, for the time being, Grunewald said, the recent drop is not panic-inducing.

"The year over year change is not large," he said. "It's notable because it's down."

But there is good news. Other parts of the economy, among them the construction industry, are picking up.

Those industries can now take over the role manufacturing was playing earlier on in goosing job growth, Grunewald said.

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