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What is the leading the US out of recession? Bill Strauss (who gave the opening keynote of the day -- click here and here for the first posts about his presentation) observes, "the recovery has been broad-based with primarily metals and automotive manufacturing leading the way." However, exports and items consumers are not used to purchasing here that are leading the way, so the growth has been less visible to many in the market. He notes, "The kind of goods that we produce are typically the goods that most US consumers do not buy." For example, "we produce the largest truck in the world here in the Midwest." Yet vehicles in this class are being shipped abroad for production (e.g., mining), base materials transportation, etc.
On a broad-based level, after suffering a 20% drop in activity during the recession, "manufacturing is coming back strongly," Strauss notes. It's come back at more than twice its historic growth rate in the past few two years, Strauss observes. On an overall basis, manufacturing has recovered 72% of its loss and within a year, and it's possible "we will be at an all time recover high level," Strauss observes. However, capacity utilization is still below 80%. If these levels rise further and cross the 80% threshold, it will be a tip off suggesting rising potential price pressures, which might lead to expansion or facilities and investment.
Capacity may eventually be challenged in certain markets unless new investment takes place. On an industry-specific basis, motor vehicle parts, for example, have "more than doubled their level " of growth between June 2009 and February 2012, realizing over a 90% growth rate during the period. Primary metals output has exceeded 50% during the same period. Machinery output is over 30% over the same period. This is all good news on the manufacturing front (although jobs creation has not kept up at the same pace, thanks to gains in productivity and the leveraging of current resources).
According to the ISM purchasing manager's index (PMI), growth has been steady and the Chicago PMI has done especially well, exceeding 60 in recent quarters (considering numbers in the mid 50s for national PMI). Inflation, however, has been kept in check, despite commodity price inflation in certain areas. Inflation, as measured by the Consumer Price Index (CPI), is likely to rise 2.2% in 2012 and 2.2% in 2013 (vs. actual inflation in 2011 of 3.3%). Industrial output in manufacturing "fell quite sharply during the recession, but has risen strongly over the past thirty-two months, averaging 6.6% and has recovered 72.3% of the loss during the recession."
Strauss concluded his talk by noting that the outlook for the US economy is to see expansion at a pace below the trend this year and slightly above the trend in 2013. At the same time, "employment is expected to rise moderately with unemployment rate edging lower" with "slackness in the economy" leading to a "relatively contained inflation rate." As a bright spot in the market, vehicle sales "are anticipated to rise at a good pace" with "solid" growth in manufacturing output.