Industry update: Manufacturing's glass is half full
By Manufacturing Business Technology Staff -- Manufacturing Business Technology, 3/24/2008 1:59:00 PM
While weakness in the housing and auto industries has been a drain on manufacturing output, things are better than they were in 2001, when demand for goods declined both domestically and in foreign markets, sending the sector into a sharp contraction.
That’s the conclusion of David Huether, chief economist with the National Association of Manufacturers (NAM) after his review of the latest Federal Reserve report on industrial production. The Fed report, released last week, said overall industrial production declined 0.5 percent in February, while the manufacturing sector—which makes up nearly 80 percent of industrial output—fell by 0.3 percent.
"The ongoing housing downturn continues to weigh heavily on a number of manufacturing industries," says Huether. "The drop in manufacturing output last month was led by 3-percent declines in both furniture and wood product production. At the same time, motor vehicle production dropped by 1 percent. This is the fifth decline in the past seven months, and partly the result of higher energy costs as well as the negative wealth effects stemming from lower home prices.
"At the same time, however, other manufacturing industries, such as computers and electronic products, machinery, medical equipment and aerospace, have experienced gains in production in recent months, partly reflecting continued growth in exports," Huether said. "Thus, while, the overall manufacturing sector is not in recession, it is clearly struggling. With the housing downturn expected to last throughout the year, and the spillover effects into consumer spending likely to intensify, the manufacturing sector will likely experience modest domestic demand in the first half of this year.
"This will be partly offset by continued robust export growth," concludes Huether. "As a result, the manufacturing sector is in a better position today than it was in 2001 when dual declines in both domestic demand and exports sent the manufacturing sector into a sharp contraction."
