Manufacturing sector leads growth in Minn., but for how long?

Manufacturing has long been counted out as an industry doomed to continued shrinkage as low wage countries like China lure more factory work abroad. But at the moment, surveys show factory owners are hiring and feeling optimistic.

Last year, manufacturing had the strongest job growth of any sector in the state's economy.

Manufacturers around the country have been hiring workers and buying new equipment. Some have enjoyed a bump in business due to the weak dollar, which has helped their export business.

A survey by Enterprise Minnesota found the percentage of Minnesota firms with significant exports jumped from 10 percent in 2008 to 16 percent last year.

At Delmar Company in Lakeville, a pick-up in business is not only evident in the roar of machines, but also in the pile of boxes lined up in a corner.

"Can you tell we're running out of space?" said Kevin Delk, president of Delmar, as he gave a reporter a tour of his plant.

The company machines plastic parts used in products ranging from food packaging to semiconductors. Delk's said customer orders are piling up, and he needs to expand into a new facility. The company's revenues in 2010 were over 40 percent higher than in 2009. And business appears to be up even higher so far this year.

"It's actually climbing more, I'm pleased to say. 2011 is just spectacular," he said.

A couple years ago, Delmar's sales took a big hit from the recession. Delk responded by shaving his staff's pay by 20 percent. He also laid off a few people. But now he's added all the staff back, plus an additional 9 workers, bringing his staff to 27.

For Delk, the pick-up has come from customers replenishing their depleted inventories and expanding their businesses. Plus, he's aggressively pursued new clients, sometimes benefiting from the demise of competitors.

The net effect leads Delk to believe he's got a sustainable recovery in his business.

"After going over our sales per client," he said, "history is telling me it's moving forward."

Overall, Minnesota's manufacturers have been adding jobs at a faster rate than the national average. Experts cite the industry mix here, where companies tied to agriculture and medical technology suffered a milder downturn than manufacturers elsewhere.

What's more, state labor analyst Kyle Uphoff says manufacturing is also stronger in this recovery than the last one.

"In the 2001 recession, we continued to lose jobs well after the recession was over. It wasn't until March of 2004, two years past the end of the recession, before we started to see an increase in the number of jobs," Uphoff said. "So it's a fairly good indication that we're seeing such job growth so early after the recession."

But Uphoff attaches a lot of caveats to manufacturing's performance. He notes that the state has regained only one-fifth of the jobs lost since the recession, and job growth is slowing.

State economist Tom Stinson is even more hesitant about trumpeting manufacturing's job gains. A major revision in the state's 2010 job numbers is due out in a few weeks, and Stinson said it could make the sector's numbers look better or worse than others.

Plus, Stinson's generally cautious about putting too much emphasis on manufacturing's role in the economy.

"It's a relatively small part of the U.S. economy and we're going to have to see growth in other sectors as well, in the services sector, in order for us to regain all the jobs that were lost in the Great Recession," Stinson said.

In the near term, some of the factors that may limit manufacturing job growth include the unrest in the Middle East and Northern Africa, which is pushing oil prices up and could soften the economic recovery, said Ernie Goss, an economist at Creighton University who tracks manufacturing activity in Minnesota and other Midwestern states.

"If we saw a return to $150 a barrel oil or what we saw a couple years ago, that would definitely thwart the growth," he said. "And though I don't think it would push us into recessionary territory again, it would really, really cut into growth -- certainly manufacturing growth and overall growth. That would be true for Minnesota, the region we track, and also the nation."

And longer term trends can crimp manufacturing job growth as well. Offshore outsourcing continues to send jobs to countries with lower labor costs.

That's something Kevin Delk, the manufacturer in Lakeville, is keenly aware of, even as his own company is adding jobs.

"A lot of my customers have left. So in my mind, we're still losing jobs. I don't see anything to stop it," he said.

And in the United States, experts predict that growing use of automation on factory floors may further limit the need for hiring workers.

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