While the many people out of work would understandably dispute reports of an improving economy, the U.S. has technically exited the recession. Now a growing catalog of data indicates encouraging business conditions in the industrial sector, on the back of several months of steady gains in manufacturing. 2009 was an extremely challenging year for most, and industry leaders expect a slow and fragile recovery. Yet the nation’s business outlook is garnering louder voices of optimism.

Economic growth has finally resumed in the United States. Gross domestic product (GDP) likely expanded at a better than 5 percent pace in the fourth quarter of 2009, after rising by 2.2 percent annualized growth in the third. This expansion followed four prior quarters of contraction.

According to a new Bloomberg News survey of economists, U.S. GDP is expected to increase 2.7 percent in 2010, the best performance in four years.

In the U.S. manufacturing sector, economic activity expanded each month from August through December, generally reflecting the trend of the overall U.S. economy. In October, U.S. manufacturing registered its highest index reading in nearly three years.

With economic growth having technically resumed in the second half of the year, the business outlook for manufacturing professionals is gradually improving.

When the economy entered recession in the fourth quarter of 2007, 70 percent of respondents to the Manufacturing Index from the National Association of Manufacturers (NAM) and IndustryWeek had a positive business outlook. By the first quarter of 2009, the number had fallen to a mere 28 percent. In the second and third quarters of 2009, the level of optimism rose to 42 percent and 55 percent, respectively.

In the most recent quarter reported (Q4 2009), the share of NAM/IndustryWeek respondents with a positive business outlook increased to 60 percent, marking the third consecutive quarterly improvement and the highest level in seven quarters.

The forecast of purchasing and supply chain executives also projects optimism about the U.S. economy for 2010. Overall, executives expect the positive conditions experienced in the second half of 2009 to continue in manufacturing this year, the Institute for Supply Management’s (ISM) December 2009 Semiannual Economic Forecast indicates.

Revenues are expected to increase in 13 of 18 industries surveyed, while the non-manufacturing sector appears slightly less positive about 2010, with eight of 18 industries expecting higher revenues. Based on the ISM report, 60 percent of supply chain executives expect revenues to be greater in 2010 than in 2009. Respondents expect a 5.7 percent net increase in overall revenues for 2010, compared to a 10.7 percent decrease reported for 2009.

“Respondents expect cost pressures to be low to moderate based on their price forecast,” Norbert J. Ore, chair of ISM’s Manufacturing Business Survey Committee, said.

ISM survey respondents anticipate a net average increase of 2.6 percent in prices paid between December 2009 and December 2010, indicating they expect prices to increase an additional 2.4 percent during the period of April 2010 through December 2010. They also expect the U.S. dollar to weaken on average against the currencies of major trading partners.

In an effort to improve their purchased inventory-to-sales ratio in 2010, respondents forecast that they will reduce inventories. Manufacturing purchasers are predicting strength in exports and imports in 2010.

According to the Manufacturers Alliance/MAPI’s latest survey on the business outlook, the long-awaited recovery in the manufacturing sector may be in sight. For the first time in six quarters, MAPI’s December 2009 composite index reached the 50-percent mark, signaling expansion.

“At its current level, the index indicates that overall manufacturing activity is expected to grow over the next three to six months,” MAPI said in an announcement of the report.

Manufacturing growth is now in its fifth consecutive month, as reported in the latest monthly Manufacturing ISM Report On Business, and the Semiannual Economic Forecast reports that manufacturers are currently operating at 70.1 percent their normal capacity, up from 67 percent reported in April 2009.

On an annual basis, MAPI forecasts manufacturing production will have fallen 11 percent in 2009, before recovering to 5 percent growth in 2010 and 6 percent growth in 2011, MAPI said last month.

Manufacturers also expect a 1.5 percent employment increase in their sector in 2010 while labor and benefits costs increase an average of 1.4 percent through the year. (See today’s Employment Outlook 2010)

It is important to understand that although the economic crisis began in the U.S., it has altered the role of the U.S. in the world economy, with large developing markets such as those in Asia gaining competitive ground. For a worldwide 2010 economic forecast by country, see The Economist (best viewed in Internet Explorer).

Despite growing optimism, the majority of manufacturing professionals expect a slow and fragile recovery, in line with most economists’ warnings, as many of the same challenges and risks remain for organizations across industries.

See also: Looking Back: The Year in Industry

Resources

J.P. Morgan Boosts GDP View, Sees 4Q GDP Rising At 5.7% Pace
The Wall Street Journal, Jan. 15, 2010

Strengthening Recovery May Intensify Fed Exit Debate
by Craig Torres
Bloomberg News, Jan. 15, 2010

The NAM/IndustryWeek Manufacturing Index – 4th Quarter 2009
by David Huether
National Association of Manufacturers and IndustryWeek, January 2010

December 2009 Semiannual Economic Forecast: Economic Recovery Continues in 2010
Institute for Supply Management, Dec. 8, 2009

MAPI Survey on the Business Outlook – December 2009
by Donald A. Norman
Manufacturers Alliance/MAPI, Jan 14, 2010

MAPI Survey on the Business Outlook: Manufacturing Sector Ready to Rebound
Manufacturers Alliance/MAPI, Jan 14, 2010

December 2009 Manufacturing ISM Report On Business
Institute for Supply Management, Jan. 4, 2010

MAPI U.S. Industrial Outlook: No V-Shaped Recovery
by Daniel J. Meckstroth
Manufacturers Alliance/MAPI, Dec. 4, 2009

MAPI Quarterly U.S. Industrial Outlook: Imminent but Weak Improvement
Manufacturers Alliance/MAPI, Dec. 4, 2009

The World in Figures: Countries
The Economist, December 2009