Those writing the obituary of American manufacturing last year may soon be taking back their words. Thursday?s release of the Institute for Supply Management (ISM) manufacturing index showed that the index hit 59.6% in March, topping February?s 56.5%. March is the eighth straight month of expansion following 18 months of contraction, and March?s manufacturing growth is the fastest since July 2004. Of the 18 industries surveyed, only plastics and rubber products reported contraction.
ISM?s manufacturing index is a monthly survey of purchasing managers. Readings over 50% indicate growth because they mean more firms said business was improving rather than worsening. The report includes separate indices for different manufacturing components. Orders and production topped 61%, employment dropped 1% to 55.1% and prices were at 75%. Perhaps best of all, the inventories index ended a 46-month streak of contraction, hitting 55.3%.
The climate is good for continued manufacturing growth in the coming months, analysts say. According to Joshua Shapiro, chief US economist at Maria Fiorini Ramirez, in a research note released before the ISM report, ?A combination of lean inventories and improving orders indicates that manufacturing output will be well supported in coming months.? Still, economists caution, true sustained manufacturing growth depends on consumer spending, which is still weak.
Analysts attribute March?s strong manufacturing growth and overall continued growth in the sector to the improving economic situation worldwide. Global growth has led to increased global demand for US exports. Also, factories are beefing up inventories that they had intentionally kept lean due to low demand and economic uncertainty. ?The manufacturing sector is benefiting enormously from a need to stabilise inventories in the wake of better final demand and the rapid pace of inventory liquidation that occurred earlier,? wrote Shapiro.
The reported manufacturing growth bodes well for the overall US economy because manufacturing is often one of the first areas of the economy to come back after a recession. However, despite this good news, the US manufacturing sector continues to shed jobs. 9,000 manufacturing jobs were lost in March. Job growth usually lags behind manufacturing growth following a recession because of productivity gains, but jobs should return as the sector continues to grow.
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