Demand rises, but will US manuf. rebound ?

From today's NYTimes

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Demand Rises, but Will U.S. Manufacturing Rebound?
By JONATHAN FUERBRINGER


rices of industrial commodities are rising swiftly, signaling that the manufacturing economy is rebounding. But one question still remains: When is that rebound going to be seen in the United States?

The demand for copper and other metals, textiles, rubber, plywood red oak, and crude oil and other petroleum products is pushing up the Journal of Commerce-Economic Cycle Research Institute index of 18 commodities at a 14 percent rate, a hefty acceleration since the index's recent low on May 13.

And the growth is not isolated in one sector; it is across the board. The growth rate in prices in the metals sector has jumped to 14 percent currently from 4.8 percent on May 13, while the pace in the textile sector has moved to 9.3 percent from 5.6 percent.

In petroleum products, a price slide has slowed to 4.9 percent from 19.6 percent as demand has picked up. And in lumber, hides, rubber and tallow, the growth rate has swung to plus 25.5 percent from minus 0.1 percent.

"This is suggesting there is real strength in the industrial economy," said Anirvan Banerji, director of research at the Economic Cycle Research Institute.

"The ambiguity here is which industrial economy it is," he said. Recent economic data indicates that the manufacturing pickup is outside the United States, especially in China.

Jobs in the manufacturing sector in the United States are still on the decline, falling by 56,000 in June, while jobs in other sectors, including services and construction, increased. Since the overall payroll jobs peaked in February 2001, 90 percent of the 2.6 million jobs lost have been in manufacturing.

Economists who are forecasting an economic rebound and President Bush, who needs a rebound as a backdrop to his re-election campaign, have all been waiting for some time for a turnaround in the manufacturing sector, which has lost about 2.3 million jobs since February 2001. Without a turnabout, unemployment will continue to be a drag on consumer spending and consumer confidence.

All this makes the July employment report and the July manufacturing index from the Institute for Supply Management, both due on Friday, especially interesting. But forecasters are not expecting a lot of good news.

Wall Street's current consensus forecast for the manufacturing index is 52, according to Bloomberg News. A number over 50 means the manufacturing sector is expanding. So that is positive. In addition, the lowest reading among the 65 analysts' forecasts in the survey is 50.1.

But even if the forecast is right, 52 is still below the 55.20 of last December and would only be the first plus-50 reading since February.

As for manufacturing jobs in the employment report, the consensus forecast is for a decline of 33,000, while overall payroll jobs are expected to rise by 10,000. Of the 16 economists' predictions for manufacturing jobs, none call for an increase in payrolls, with the smallest decline at 10,000.

So it is no mystery why President Bush sent his economic team of Treasury Secretary John W. Snow, Commerce Secretary Donald L. Evans and Labor Secretary Elaine L. Chao on a two-day road trip to Wisconsin and Minnesota to talk up the economy.

But the trio was faced immediately with Tuesday's report of an unexpectedly big drop of consumer confidence in July, as the Conference Board's index fell to 76.6 from 83.5. The consensus of forecasters was for an uptick to 85.

Mr. Snow said he still expected the economy to be stronger in the months ahead. But the consumer confidence decline makes it more likely that the jobs forecasts for the July employment report on Friday could be even less encouraging.

Commenting on consumer confidence, David Greenlaw, chief United States economist at Morgan Stanley, said the "weakness in consumers' views of the labor market draws into question recent signs of improvement such as jobless claims and poses some risks for Friday's employment report."

That is an unusual slant.

Basic economics says that a run up in raw material prices has a dampening effect on manufacturing because of the overall increase of the prices of finished goods.

Rising raw material prices are also a precourser if Infaltion. Regardless of what Allen Greenspan says the financial system can't stand inflation right now.

I just think the story is a Blivet intended to make a small change in prices look encouraging.

I hope it doesn't amount to anything, I would rather our "Economists" refrain from screwing things up further.

More today-

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August 4, 2003
Factory Orders Up 1.7% in June
By THE ASSOCIATED PRESS

WASHINGTON -- Orders to U.S. factories rose 1.7 percent in June, the biggest gain in three months, a fresh sign that the nation's battered manufacturing sector is turning a corner.

The solid increase reported by the Commerce Department Monday came after orders went up by a modest 0.3 percent in May.

The performance in June was stronger than economists were expecting; they were forecasting a 1.5 percent rise in factory orders. Gains were fairly widespread with orders going up for machinery, household appliances and cars as well as "nondurable" goods such as food products and chemicals.

Manufacturing has had the hardest time trying to get back on firmer footing after being knocked down by the 2001 recession. Faced with lackluster demand at home and abroad as well as competition from a flood of imports, factories have throttled back production and cut jobs.

Monday's report along with other recent data on factory activity suggest that the industry is on the mend.

A report released Friday showed that manufacturing expanded in July for the first time in five months. The Institute for Supply Management's manufacturing index rose to 51.8 in July, up from 49.8 in June. A reading below 50 indicates that manufacturing activity is slowing, and a reading above 50 indicates it is growing.

Even with indications that manufacturing is picking up, employment in that sector isn't expected to show improvement any time soon, economists say. The sector lost 71,000 positions in July, marking the 36th month in a row of job losses.

In manufacturing, productivity has been solid, meaning factories can produce more with fewer people. Economists say employers will be wary about hiring back some workers until they are certain the economic recovery has staying power.

With scattered signs that the economy is getting better, the Federal Reserve probably will hold a key short-term interest rate at a 45-year low of 1 percent at its next meeting on Aug. 12, analysts said.

Near rock-bottom short-term interest rates combined with fatter paychecks and other tax incentives coming from President Bush's third round of tax cuts may spur consumers and businesses to spend and invest more, helping to lift the economy in the second half of this year.

Fed Chairman Alan Greenspan and private economists are hopeful that the economy will stage a sound rebound in the current third quarter and the final quarter of this year. Some project the second half growth rate to range from 3 percent to just over 4 percent.

Monday's report showed that orders for primary metals, including steel, went up 2.4 percent in June, after being flat in May. Orders for machinery rose 4 percent in June, compared with a 0.5 percent decline the month before.

For household appliances, orders increased 4.5 percent, an improvement from May's 17.5 percent drop.

Orders for all transportation products rose 4.7 percent in June, after a 2 percent decline in May. Excluding transportation orders, factories saw demand for all other products rise by 1.2 percent in June, the biggest increase since March. Orders for automobiles and parts rose 3 percent in June, the biggest gain since January 2002. In May, such orders fell by 1.9 percent.

For nondurables, orders increased 0.7 percent in June, on top of a 0.6 percent increase in May.

I wonder how much of the increase was due to the need to replace goods used in the war?

They also claim productivity was "solid"?
Right now we have no choice but to have fewer workers.

It will be interesting to see if the trend continues.

Les

I heard on the radio that "alot" had to do with the war. Defining "alot" would be helpful.