New York, July 9--The recovery in U.S. manufacturing appears to be gaining momentum, as a survey of the nation's top manufacturers on future business activity, including orders, shipments and investment, reached a record for the third-straight quarter.
And while most companies surveyed by the Manufacturers Alliance/MAPI, an Arlington, Va., group that represents larger manufacturers, expected overall prices to rise in 2004, the increase is expected to remain below 4%, suggesting that rising commodity prices won't greatly fan inflation.
Some economists believe the manufacturing sector is at the start of a cyclical growth period that could last eight to 10 years and restore more than one million of the three million recently lost industrial-sector jobs. "The thinking now is that because of the current federal policy and more sophisticated management of the economy, there will be less volatility," said Dan Meckstroth of the Manufacturers Alliance. A decade-long growth period would roughly mirror the past two cycles, from 1991 to 2001 and from 1980 to 1989.
While the past two growth cycles restored jobs, they didn't recover all that were lost. Nor is this one expected to do so, as productivity gains and automation have enabled companies to make more with fewer workers. For example, Medrad Inc., an Indianola, Pa., maker of medical devices, installed an automated assembly line last year that increased production capacity of its sterile syringes by more than 60% without adding new employees. The biggest job gains appear to be in housing-related sectors, such as wood products, concrete and fabricated metals.
This latest survey suggests that the uptick in manufacturing activity, which began in the second half of 2003, will get stronger in the final two quarters of 2004.
New orders, exports and shipments are all expected to rise. The number of manufacturers with plants operating above 85% capacity -- generally the benchmark that plants must meet to make a profit -- jumped 42.3% from March 2004 to June 2004, according to the survey. More manufacturers also reported increased profit margins.
Many of the individual indexes are based on comparisons of current levels with year-ago levels, when the manufacturing sector was depressed. Still, Don Norman, an economist with the Manufacturers Alliance, said that "given the strength of all the indexes as well as widely shared expectations for future growth, it is clear that the expansion is real and robust."
Some companies are adding workers and shifts to fill rising orders. Heavy-duty truck maker Freightliner LLC said it would add 593 jobs and a third shift at its plant in Cleveland, N.C., to meet increased demand for truck transportation. That will put the Freightliner plant at its highest employment level in five years. "The North American heavy-duty truck market continues its vigorous recovery and we have a positive outlook for further improvement," said Rainer Schmueckle, President and chief executive of Freightliner.
Manufacturers expect prices to continue rising on key commodities such as steel, natural gas, oil and gasoline, and chemicals, but to level off or fall on aluminum, copper, coal and rubber. To manage those higher prices, manufacturers are relying more on longer-term contracts, which would presumably lock in current lower prices of commodities like steel and chemicals, which are expected to rise in coming months.
