Factory Output on the Rise

The US manufacturing sector has been one of the keys to our economic recovery since the recession hit in 2008. And while 2011 has seen its share of slumps, there are signs that manufacturing is starting to gather momentum yet again.

Factory output increased 0.5 percent in October, the fourth straightly monthly gain. The auto industry recovery has played a primary role in improvement of factory activity.

Supply chain disruptions from the earthquake and tsunami that hit Japan earlier this spring coupled with high fuel costs caused a slow-down in factory activity earlier this year. Now that the crisis in Japan has faded a bit, the supply chains are flowing more freely – a welcomed relief from many US auto plants who depend on Japanese parts. In addition, consumer demand is up. In October, car sales increased 7 percent over the same month last year so there has been some reduction in inventory.

Optimism for a better 2012 is playing a role as well. Many manufacturers are anticipating increased demand, boosted by the foreign sector, causing considerations for capital investments. The demand from overseas is a situation expected to continue on for some time, especially while the Fed is focused on the need to bolster the economy – keeping the dollar weak.

Still, the outlook remains mixed for many, consumers may not be able to sustain their spending growth if unemployment remains high and Europe may be on the brink of another recession, dragged down by their debt crisis. In addition, other reports suggest the manufacturing sector is growing at more of a slow and steady pace. The Institute for Supply Management’s (ISM) index slipped in October down to 50.8 from 51.6 in September. However, even with the small decline, the ISM reading marked the 27th consecutive month of growth for the manufacturing sector.