Plus: Machine Tool Sales Surge, U.S. Trade Deficit Widens and New Lead Regulations Take Effect.

Fed Issues Optimistic Assessment
“[P]olicy makers issued their most upbeat assessment in more than a year by saying that the downturn appears to have hit bottom and that consumer spending, financial markets and inventory-building by corporations all continued to stabilize,” the New York Times reports.

Last week, the Federal Open Market Committee of the Federal Reserve announced significant improvement in the United States economy, with major market forces stabilizing and gradually contributing to sustainable growth. Despite continuing job losses, slow income growth, tight credit and lower rates of business investment and staffing, the Fed maintains that “economic activity is leveling out” with help from its policy initiatives over the previous two years.

The central bank plans to keep its base interest rate between zero and 0.25 percent for an extended period and will slow the pace of its $300 billion program to purchase long-term treasury bonds.

According to MarketWatch, the indicators that have boosted the Fed’s outlook include: a 1 percent annualized drop in the gross domestic product (GDP) versus the 6.4 percent decline in the previous quarter; the unemployment rate falling back to 9.4 percent; new supply orders rising to their highest level in two years; stock prices rising by about 25 percent since March; and industrial production improving for the first time in nine months.

Industrial Production Up, Deals Down
Industrial production rose by 0.5 percent in July, while manufacturing output climbed 1 percent largely due to a boost in automotive production, according to the Federal Reserve’s latest report on industrial production and capacity utilization. The number of final products created increased by 0.6 percent and materials expanded by 0.8 percent.

Despite the July improvement, industrial production was still down 13.1 percent over the same period in 2008. Meanwhile, capacity utilization — which measures how much manufacturing potential is being deployed — was 12.4 percent lower than the average between 1972 and 2008, despite climbing to 68.5 percent in July.

“We are encouraged by the July industrial production report and the other ‘green shoots’ that suggest that the manufacturing sector recession is finally bottoming out,” Daniel J. Meckstroth, chief economist for the Manufacturers’ Alliance/MAPI, wrote in an analysis of the Fed’s report.

Before the reported gains, the business outlook among manufacturers was already looking up. According to the National Association of Manufacturers /IndustryWeek Manufacturing Index, the business outlook among U.S. manufacturers improved in the second quarter of 2009, with 42 percent of manufacturers claiming a positive perspective for the future, compared to 28 percent in the previous quarter. Sixty-six percent of manufacturers believed a downturn in production would last into 2010, while 17 percent claimed it would reverse in the second half of 2009. The remaining 17 percent were not experiencing a production downturn.

Outlooks may be improving, but caution remains in the industrial sector. A report from PricewaterhouseCoopers last week found that industrial mergers and acquisitions in the first half of 2009 were down 71 percent over the same period in 2008. Total deal value fell to $4 billion, a decrease of 85 percent from the first half of 2008, while the value of the average deal had a year-over-year decline of 48 percent, dropping to $153 million.

Trade Deficit Grows Larger
The U.S. trade deficit widened in June due to rising oil prices, but the increase was lower than analysts expected. According to new data from the U.S. Department of Commerce, the deficit in goods and services rose to $27 billion in June, compared to $26 billion this May.

June exports were $2.4 billion higher than in May, while imports increased by $3.5 billion, although they were down 22.2 percent and 31.1 percent, respectively, from June 2008. According to the Commerce Dept., the largest increases in the importing and exporting of goods were driven by industrial supplies and materials.

The gains in imports and exports have some analysts claiming that trade flow has bottomed out and may cross over into recovery.

“Trade is still a long way from being normal. But the normalizing trends are in place,” Joel Naroff, of Naroff Economic Advisors, told Agence France-Presse. A widening deficit may be a good thing, he said, because it means the U.S. economy “is growing again and we are sucking in products from all across the globe.”

Machine Tool Consumption Surges
In June, U.S. purchases for manufacturing technology climbed to $135.85 million, an increase of 22 percent over the previous month, according to a new report from the Association for Manufacturing Technology (AMT) and the American Machine Tools Distributors’ Association (AMTD).

The biggest gains were in the Southern, Central and Midwest regions, with increases over May consumption totaling 85.6 percent, 39.3 percent and 29 percent, respectively. The Northeast region had a decrease of 6 percent, while the Western region fell by 7.9 percent.

Machine tool consumption was still down 69.2 percent from the June 2008 total of $440.55 million, and the 2009 year-to-date total is down 70.1 percent over the previous year. However, industry experts remain hopeful about the future of manufacturing technology.

“With total manufacturing technology orders showing positive growth for the second month in a row, we are hopeful that the end is near to the worst single-year decline in our industry’s history,” Douglas K. Woods, president of AMT, said in a statement.

New Children’s Products Regulations Take Effect
Important provisions of a consumer product safety law passed by Congress last summer went into effect last Friday. The Consumer Product Safety Improvement Act of 2008 limits the amount of lead that can be used in children’s products, such as teaching aids and toys, and requires extensive testing and tracking labels to be factored into the production process.

The added expense can be a heavy burden on smaller manufacturers, and some small businesses are seeking to amend the rules, especially for companies that already manufacture safe products or those whose goods pose little risk to children.

Also started Friday, U.S. companies are required to put tracking information on all toys and children’s products. “The requirement is for a tracking label or other distinguishing permanent mark that contains certain basic information, including the source of the product, the date of manufacture, and more detailed information on the manufacturing process such as a batch or run number,” ConsumerReports.org’s safety blog explains.

“We’re going to take into account situations where businesses are making the right efforts to manufacture products safer. We are going to continue to put out new rules and new guidance to help companies in that effort,” Scott Wolfson, a spokesman for the Consumer Product Safety Commission, recently told the Associated Press.

According to the Wall Street Journal, the toy industry stands to lose approximately $2 billion under the new safety law, including $600 million in products that will have to be recalled and disposed for not meeting lead requirements. In addition, about $100 million in thrift-store inventory will need to be destroyed.