Manufacturing Back on Track?

Driven by a 0.7 percent jump in manufacturing output, overall industrial production rose by 0.4 percent in December 2006, according to a Jan. 17 Federal Reserve report. “After three consecutive monthly declines, this upturn is a hopeful indication that the recent slowdown in industrial activity may be coming to an end,” said David Huether, chief economist for the National Association of Manufacturers (www.nam.org).

“For manufacturing, which accounts for more than three-quarters of industrial output, the 0.7 percent surge in activity was the strongest gain in six months,” Huether said. “It was driven by solid increases in computers and electronic products, machinery, aircraft and motor vehicles, as well
as a number of nondurable products such as apparel and petroleum and coal.”

Throughout 2006, manufacturing production increased by a healthy 3.7 percent. And with overall gross domestic product (GDP) growth expected to come in at 3.1 percent for 2006, manufacturing has, for the first time since the late 1990s, outpaced the overall economy for three consecutive years.

Double digits

“Robust growth in both exports and business investments are the principal reasons manufacturing outpaced the general recovery again last year,” he said. “This is evident by double-digit growth in both aircraft and electronics production last year as well as strong growth in machinery production.

At the same time, 2006 was not a banner year for all manufacturers. “For sectors closely aligned with housing, such as wood products, furniture and nonmetallic minerals, production declined by nearly 6 percent” Huether said. “Likewise, after significant increases between 2002 and 2004, a second consecutive decline in car sales caused a contraction in motor vehicle production last year. “With business investment moderating in 2007 and the housing downturn likely to come to an end by mid-year, the manufacturing expansion will grow more in line with the general economy, or at about 3 percent, for the coming year,” he predicted.

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