Manufacturing May See Some Improvement This Year

While the outlook for a strong manufacturing rebound is unlikely, most economists are forecasting some continuing improvement this year in the sector.

Manufacturing industries are poised for a turnaround later this year, though the next several months will be weak as both domestic and global demand conditions remain tenuous amid the current geopolitical situation. Business investment is expected to post nominal and real dollar gains this year, after two years of declines.

The performance of most manufacturing industries improved in recent quarters though few are on a firm path to recovery. Revenues for manufacturing industries increased on average by more than 7% during the fourth quarter of 2002 compared to a year earlier. Leading the way was stronger revenue growth in the vehicle, electrical equipment, textiles and apparel, and semiconductor industries. More importantly, profits turned positive in the fourth quarter for the first time in two years.

Capacity utilization rates typically need to be above 80% before significant investment in new capacity will take place. Manufacturing capacity utilization was below 73% in February, close to the low it reached at the end of 2001. This is one important barometer for when new investments will be made by manufacturers.

Despite the current slow economic environment, some manufacturers are moving ahead with investments, as we reported yesterday in stories about Marzetti opening a new plant in Kentucky, a new Toyota subsidiary opening a new aluminum plant in Tennessee and of course the big news is the new Toyota truck plant starting in the San Antonio area.

In related news, the National Association of Manufacturing (NAM) has embarked on a "Strategy for Growth and Manufacturing Renewal," which was kicked off last month. Go here to learn more.

Stay tuned.