Manufacturing has to be a key sector in the US recovery, which belies its 11% prportion of the US economy. As we said right at the start of the recovery, growth would have to be driven by productive effort, with producers making things consumers want to buy. And while the US consumer remains in de-leveraging mode, the important consumers are external to the US i.e. exports.
With that in mind, the makeup of the latest PMI result makes for encouraging reading. In particular:
1) the production index hit 60.7 in December, up 5.7 percentage points
2) the trend in New Orders now appears to be on an upward trajectory
3) the export index came in at 54.5 which is down on Novembers 57.0, but still over 50
4) the inventories index fell to 51.8. indicating investories are still building, but at a slower pace.
Furthermore, factory orders rose 0.7% in November, towards the top end of market expectations. Orders for durable goods fell in the month, but orders for capital goods rose. We expect business investment to remain strong into 2011 as firms build productive capacity, an important precursor to strong productive sector recovery.
Sure this all falls someway short of a robust recovery, but the signs are positive. We continue to believe that this is the beginning of a resurgence in US manufacturing that will see its share of the US econony beging to rise after decades of decline.