Tuesday, October 2, 2012

Some Good News from U.S. Manufacturing

After several months of slowing, manufacturing activity in the U.S. is picking up again. That's good news and augurs well for the economy's future growth and ability to avoid another recession anytime soon.

U.S. Manufacturing Expanded in September has the story:

"U.S. manufacturers rebounded in September, with fresh data Monday showing factory activity expanded for the first time in four months despite weakening economies around the globe....

Details in the report were encouraging, with higher readings for new orders and employment. That could point to a rise in hiring and production in coming months.
"Comments from the panel reflect a mix of optimism over new orders beginning to pick up, and continued concern over soft global business conditions and an unsettled political environment," the report said.

Good news within the U.S. ISM survey was the rebound in demand. The new-orders index rose to 52.3 from 47.1 in August. The exports index edged up to 48.5 from 47.0. . . .

Still, factories are continuing to take a hit on exports as demand for U.S.-made goods overseas declines amid sluggish economies around the world. The slower global economy is an important reason why the sector, while now appearing stronger than during the summer months, is still weaker than it was during the first three years of the recovery.

The ISM report indicated that manufacturers are concerned about growing risks to growth abroad and at home, including worsening conditions in Europe and the prospect of tax increases and spending cuts at home.

Those anxieties were underscored Monday by other data showing further weakening in factory activity in Europe and Asia.

Euro-zone manufacturing activity shrank for the 14th straight month in September, and the number of people without jobs rose to a record, suggesting prospects are slim for a quick return to growth in the crisis-hit currency bloc. . . .

Brad Holcomb, who heads the Institute for Supply Management's manufacturing survey, said the pickup in U.S. factory activity last month appeared to stem from demand for cars and a slight turnaround in the housing industry. Companies tied to those industries—such as auto-parts suppliers and furniture makers—drove the growth, Mr. Holcomb said. But he added that factory activity isn't likely to expand significantly in coming months given uncertainty in the global economy. . . .

Home building has been a bright spot for the economy of late. In August, new-home sales stayed near their highest level since 2010 and were up 27.7% from a year earlier, according to a separate Commerce report last week.

But private nonresidential building has been weak, falling for three straight months. In August, it decreased 1.7% to $288.73 billion. Construction of offices, factories and power and communication infrastructure all fell."

Summing Up

The U.S. economy continues to make progress, albeit slowly.

With Europe in recession and China slowing as a result of less demand from Europe and elsewhere as well, the global situation is quite weak.

Maybe we're only the best house in a bad neighborhood, but at least we're exhibiting growth. My best guess is that our economy will continue to keep its head above water while we wait for the rest of the world's economies to pick up the pace and help crank up U.S. export orders.

That could be a long wait, but it will happen sooner or later. In the meantime, our mediocre consumer spending growth combined with housing related and auto sales should keep the U.S. economy's head above water.

Of course, we'll need our politicians not to do anything stupid to cause another recession along the road to recovery.

In other words, let's hope that they'll act as grown-ups after the election and be able to sidestep the fiscal cliff that's scheduled to go into effect at year end.

But more on all that fiscal cliff stuff later.

For now, things continue to improve and that's a good sign.

Thanks. Bob.

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