What is in this article?:
Can U.S. manufacturing maintain its momentum and continue to lead the recovery?
Though the ISM report revealed a contraction in manufacturing activity, only a sustained reading below 43 actually signals a lack of growth in the sector. Even at the lower number, the manufacturing figures were consistent with growth at an annual rate of 1.5%. “This is not good. Not good at all,” said Dan Greenhaus, chief economic strategist at BTIG, an institutional brokerage. However, Greenhausgoes on to say that although it is a “terribly weak number,” it “does not mean recession for the broader economy.”
Accounting for about 12% of the overall U.S. economy, manufacturing has led the recovery that began June 2009. Until the ISM released the report on its June index, manufacturing had been reported as climbing at a steady pace, giving industry experts reason to be optimistic about its long-term prospects.
Recently, the National Electrical Manufacturers Association (NEMA), Rosslyn, Va., reported the manufacturing sector experienced a surge of activity in the first quarter of 2012, reaching a 10.4% annualized increase in industrial production for manufactured goods. For this surge, the organization credits unseasonably warm weather in January and February. Its forecast for manufacturing activity for the whole of this year and next is more tempered, expecting it to decelerate from its robust post-recession pace to a more sustainable level closer in line with long-run industry output trends. NEMA is expecting output growth to remain at an average of 3.4% in 2012 and 2013.
In addition, according to the Association for Manufacturing Technology (AMT), May U.S. manufacturing technology orders totaled $473.92 million, as reported by companies participating in the U.S. Manufacturing Technology Orders (USMTO) program. Analysis of manufacturing technology orders provides a reliable leading economic indicator as manufacturing industries invest in capital metalworking equipment to increase capacity and improve productivity, according to the organization. This marked a 14.5% increase from April and a 19% jump when compared with the total of $398.10 million reported for May 2011. With a year-to-date total of $2,235.37 million, 2012 is up 12.1% compared with 2011.
“The latest USMTO figures indicate both sound health and continued expansion in durable goods manufacturing,” said AMT President Douglas K. Woods. “This is backed up by other key economic indicators, including an upward revision in housing starts and a strong showing in durable goods orders. Overall, indications are that manufacturing will continue to lead the way in the general economy.”
Additionally, in its Nonresidential Construction Index (NRCI) Second Quarter 2012, FMI, Raleigh, N.C., calls manufacturing construction the “comeback kid” because of its steady improvement since the worst of the recession. “It looks like it’s doing better than it has for a long time,” says Phil Warner, FMI research consultant. “Our panelists are seeing more activity in that area, so they are more bullish and less pessimistic about it.”
FMI is forecasting manufacturing to grow at a rate that just outpaces the GDP (see Figure at right). “That’s not what you’d call a major boom, but we expect it to continue to increase right through 2015,” says Warner. “It’s nothing radical, but we expect steady growth.”