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November 5th, 2009
- General
Washington D.C. - U.S. Manufacturing sector shows some spotty signs of recovery
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U.S. economic figures out earlier this week showed factories are revving up production and gearing up to start hiring again. In a surprise sign of strength, the U.S. manufacturing sector grew in October at its fastest pace since April 2006, says the Institute for Supply Management. The ISM’s gauge of manufacturing activity jumped to 55.7 from 52.6 in September, the third consecutive monthly reading above 50, the line that divides expansion from retrenchment. Also unexpectedly, hiring plans in the beleaguered sector turned positive for the first time in more than a year. The output boost comes after U.S. retailers, wholesalers and factories cut inventories at a record pace in the first half of the year. They’ve seen their stockpiles depleted further still as U.S. consumers have started opening up their wallets again.
Some economists say they were most encouraged by the signs of hiring in the sector, which has been slashing jobs amid the downturn. The employment index surged to 53.1 from 46.2.
"In the "jobless recovery" that followed the 2001 recession, the employment index did not breach the 50-mark until November 2003, two years after the recession ended," says Nigel Gault, chief U.S. economist with IHS Global Insight. "Assuming that the current recession ended in June, it has taken just four months for the employment index to breach 50."
The quick shift could be a sign that firms need to rehire more quickly than in previous downturns because they’ve cut employment so sharply,Mr. Gault said. "If that’s right, then consumers will start to get some support from rising incomes."
While the factory data may help bolster the case that the U.S. economy is on the mend, some economists cautioned against expectations that U.S. manufacturers will start adding workers anytime soon. The boost in the data was probably caused by expected callbacks of laid-off employees and opportunities for temporary workers.
"I don’t think manufacturing employment is going to start rising until maybe the second half of next year," says Dave Huether, chief economist with the National Association of Manufacturers. "In the last few months, manufacturing employment has been trending down about 50,000 jobs. When we see the figures come out on Friday, maybe that will be cut in half."
Manufacturing still faces dark clouds, including low consumer confidence and the end of U.S. government stimulus efforts such as "Cash for Clunkers." But the signs are encouraging
A cross section of the steel wire producers this editor has spoken to says utilization levels are still low with the exception of some wire converters of finished products that are too bulky to ship and where the falling dollar has effectively shut out imports.
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