Manufacturing revs up in good sign for economy
Posted Monday, November 21, 2011 by Peter Kelly
The U.S. economy has been showing signs of gathering some speed recently. Factories are running at a faster pace; inflation is almost nonexistent; and there's even been some hiring, recent data show. The speed bump on the road ahead may be Europe, however, economists say.
"The consistent theme in the recent flow of economic data has been one of accelerating momentum in economic activity," said Millan Mulraine, a senior macro strategist at TD Securities in New York. Nevertheless, the concern for the recovery continues to be about what happens in Europe, as any escalation in the unfolding debt crisis could present a significant obstacle for the economic recovery."
Factories made more cars, electronics and business equipment in October, a sign that manufacturing is recovering after slowing this spring. Industrial production rebounded 0.7 percent last month, the Federal Reserve said on Wednesday, after slipping 0.1 percent in September. October's increase was the largest since July. Capacity utilization, a measure of how fully firms are using their resources, rose to 77.8 percent from 77.3 percent in September. That was 2.1 percentage points above its level from a year earlier, but 2.6 percentage points below the 1972-to-2010 average. Officials at the Fed tend to look at utilization measures as a signal of how much "slack" remains in the economy -- how far growth has room to run before it becomes inflationary. But there appears to be little to worry about on inflation. The Labor Department said consumer prices dropped 0.1 percent last month, which was roughly in line with expectations, as Americans paid less for new cars and gasoline. The data reinforce the view that inflation is poised to trend lower following a spike in oil prices earlier in the year. That is seen giving the Fed more room to act if the economy slows. "The Fed remains intently focused on employment and growth -- and not on inflation," said Jacob Oubina, an economist at RBC Capital Markets in New York.
Employment, along with the slump in the housing market, remain rough spots for the economy. Last week, the Labor Department reported that new claims for unemployment benefits dropped in the latest week, in a sign businesses may be picking up hiring, albeit at a trickle. A new weekly jobless claims report on Thursday may show whether the prior week's data was an aberration or a trend. And although the economy has been gaining steam since the summer, Europe's worsening sovereign debt crisis threatens to throw the U.S. economy back into recession.
"The data is relatively upbeat in the U.S., which contrasts with the situation in Europe," said Omer Esiner, a strategist at Commonwealth Foreign Exchange in Washington.
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