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Rebound on the factory floor

Since April, industrial production has recovered some of the decline it suffered during the recession, but it still has a ways to go.Since April, industrial production has recovered some of the decline it suffered during the recession, but it still has a ways to go.By Chris Isidore, senior writer


NEW YORK (CNNMoney.com) -- The long-battered U.S. manufacturing sector is showing surprising signs of strength and many experts think it has relatively bright prospects for at least the next several years.

Improved productivity, the global economic recovery and a lower value of the dollar have lifted exports of goods 24% since April. January was the first month in three years that there was a gain in manufacturing jobs nationwide.

In fact, activity in the sector is better than at any time in more than five years, according to the Institute of Supply Management's survey of manufacturing executives.

"Manufacturing is clearly leading the way out of the recession," said Mark Zandi, chief economist for Moody's Economy.com. Zandi said there even should be some new manufacturing jobs created in the next few years, and that "modest gains are a big swing from massive job losses."

Further signs of strength came Wednesday when the Federal Reserve's report on industrial production showed growth for the seventh straight month.

While the index is still 10% below where it was at the start of the Great Recession in December 2007, it has jumped 4% in the nine months since the low point it hit in April.

"This report is the latest confirmation that the manufacturing sector is making progress recouping losses following the recession, " said Tim Quinlan, economic analyst for Wells Fargo Securities

Even those bullish on manufacturing admit that much of the growth since last spring was due to the need to replenish depleted inventories, a trend that can't last more than a few more months. But the end of inventory restocking will only slow the recent fast pace of growth, not end it.

The increased demand for U.S. exports should help the sector. But an expected pickup in consumer and business spending in the U.S. later this year could be particularly good news for manufacturers.

Experts point to the pent-up demand for new cars and new homes as a good sign.

"The levels of vehicle sales and housing construction are much below where general demographic trends suggest they should be," said Zandi.

Automakers are among the leading purchasers of goods as varied as semiconductors, carpeting, glass, metals and paint, in addition to traditional auto parts. New home sales lead to the purchases of furniture and appliances far more than sales of existing homes.

Zandi said this recession was much tougher on U.S. manufacturers than past downturns, but those that were able to cut capacity and costs and survive are far more competitive than those that came out of past downturns.

"For manufacturers that could survive the Great Recession, their prospects are very good," he said.

Dave Huether, chief economist for the National Association of Manufacturers, agrees with Zandi that U.S. manufacturers have a relatively bright outlook.

He said the sector is far better positioned today than it was at the end of the previous recession in late 2001, due partly to the lower value of the dollar, which remains relatively weak against other currencies despite a rally this year.

Huether believes that manufacturers could start to hire significant numbers of workers later this year, and that job growth will continue all the way through 2012. He is predicting a million new manufacturing jobs in the next few years. There hasn't been an annual net gain in jobs since 1997.

"Will we get all the jobs back? Probably not. But we'll do better than in the last recovery when we really didn't see any job growth," Huether said.

Still, those worried about the competitiveness of U.S. manufacturers, especially compared to competition from China, aren't ready to declare that only good times lie ahead for the sector.

"It's too early to say that manufacturing has seen the worst and that it'll be on an upswing for a while, although all of us are pleased that we seem to have halted a slide that was pretty frightening," said Scott Paul, executive director of the Alliance for American Manufacturing, a trade group that includes smaller manufacturers and labor unions. To top of page

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