Saturday, March 5, 2011

U.S. manufacturing index continues increasing, but obstacles lie ahead

United States manufacturing has emerged from the recession with the rest of the economy in tow. Manufacturing activity in the U.S. accelerated in February to its highest rate in nearly seven years. The latest surge marks 19 straight months of expansion. Continued manufacturing growth is in the forecast because orders are outstripping inventories, however the sector must overcome looming inflationary pressures.

ISM's February report

As factories increase production to meet rising demand, U.S. production in Feb. increased at the highest rate since May of 2004, according to the Institute for Supply Management. Many use the monthly production index that ISM published as an economic indicator. ISM is based in Tempe, Arizona as a nonprofit industry. There was a rise in the ISM manufacturing index, or factory index, from January to February. This increase from 60.8 to 61.4 has been a good sign. Anything over 50 percent is good. It means growth is occurring. That huge leap was not expected. The growth change was expected to get to 60.9 in Feb. instead.

Good news for U.S. production

You will find several things that make the manufacturing index go up. These consist of strong exports causing production increase and new orders. From Jan to February, the ISM export index went up from 62 to 62.5. Then there was a change from 67.8 to 68 in the new orders index. That is the strongest rate since Jan 2004 that has happened. There was also a rise in the ISM production index. It went to 66.3 after being at 63.5. The inventories index headed the opposite direction, from 52.4 in January to 48.8. The manufacturing sector will be increasing with these numbers that show the supply chain needs more replenishment. The government program that ended up being an $858 billion tax cut bill that passed in December will help manufacturers. In 2011, they may get just a little additional help.

Possible difficulties

The hiring sector went up with the production activity. There was an increase from Jan to February in the ISM employment index also going from 61.7 to 64.5. That is the highest rate since January 1973 that has been hit. However, inflationary pressures loom as a threat. When an increase in the ISM index from 81.5 to 82, many are concerned that consumers already having trouble with higher gas prices can have to start dealing with rising prices on commodity and energy. In January, an increase of 0.2 percent was shown in customer spending though, which is the slowed rate since June. That means that manufacturers may be in for a surprise here soon with the increased manufacturing and less buying.

Articles cited


Wall Street Journal

CNN Money

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