The manufacturing sector is expected to see a stronger recovery over the next two years than the broader U.S. economy, though much of the upswing may be due to disproportionate manufacturing losses during the recession, a new report shows.

The United States manufacturing sector is likely to make gains across a range of key indicators in the near-future, outpacing the rate of recovery in the general economy. However, the rapid pace of the rebound may be due to the significant contraction in manufacturing during the downturn, which left more room for growth in the sector.

According to the latest quarterly industrial outlook report from the Manufacturers Alliance/MAPI, released last Thursday, measured on a quarter-to-quarter level, manufacturing industrial production grew at almost a 6 percent annual rate through the fourth quarter of 2009, after reaching 8 percent growth in the third quarter.

Non-high-tech manufacturing production increased at a 5 percent annual growth rate in Q4 2009, and the report forecasts that it will continue expanding by 3 percent in 2010 and 5 percent in 2011. High-tech industrial production grew at an 8 percent annual growth rate in the last quarter of 2009, and is projected to increase by 15 percent in 2010 and 18 percent in 2011.

In the fourth quarter of 2009, 12 of the 27 industries tracked in the report had inflation-adjusted new orders or production rise above prior-year levels, compared to five industries reporting the same in the third quarter. In this period, steel production also grew by 49 percent and basic chemicals expanded by 16 percent. 12 industries are currently in the “accelerating growth” phase, 13 are in the “decelerating decline” phase and only two are undergoing “accelerating decline.”

“A recovery is clearly under way. Monthly data for manufacturing production indicate that the recession, which started in January 2008, ended in June 2009,” Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, said in an announcement of the findings. “The worst of the inventory destocking is ending; inventories do not have to be built to increase production as output growth can result from less liquidation. The inventory swing has had a positive effect on production and was evident in the fourth quarter (2009).”

The Manufacturers Alliance/MAPI forecasts that 17 of 24 manufacturing industries will show improvement in 2010, led by steel production with 35 percent projected growth and housing starts with 34 percent projected growth. 22 industries are expected to see double-digit growth in 2011, though they will be rising from historically low levels. In fact, much of the increased pace of expansion is “due to industry taking the brunt of the decline in the downturn.”

Optimism among U.S. businesses is beginning to improve as well. A March survey from PricewaterhouseCoopers found that 49 percent of senior managers are optimistic about economic prospects for the next 12 months, while 12 percent are pessimistic. Thirty-nine percent of respondents remain cautious or uncertain about the coming year. The survey also found that executives expect to see 3.4 percent average revenue growth over the next 12 months, up from 2.7 percent expected growth reported in the previous quarter.

Although employment is likely to remain a major concern, 32 percent of businesses plan to make net hiring increases over the next year, the survey found, while only 12 percent expect to make layoffs and 56 percent of firms do not plan to change their workforce levels in the next twelve months.

“The labor market is showing signs of stabilizing following the loss of 8.4 million jobs since the recession began in December 2007. Payrolls this month will probably expand by 200,000 after a decline of 36,000 in February,” Bloomberg News reports.

Resources

MAPI Quarterly U.S. Industrial Outlook: Industrial Recovery Gaining More Solid Footing
Manufacturers Alliance/MAPI, March 18, 2010

Management Barometer: Business Outlook Report, February 2010
PricewaterhouseCoopers LLP, March 8, 2010

Fed’s Bullard Says U.S. is ‘About to Turn the Corner’ on Jobs
by Christopher Wellisz
Bloomberg News, March 22, 2010