Manufacturing powers US economy

Output from US plants is driving the country’s sluggish economic rebound, which is good news for Canadian manufacturers.

March 25, 2011   by PLANT STAFF

TORONTO: Canadian manufacturers that do much of their business supplying US plants can rejoice: their customers are driving the country’s sluggish economic rebound, which means is on a solid upswing.

An “observation” report from TD Economics notes US manufacturing makes up about 12% of US economic output, but it has “bounced back with a vengeance,” contributing more than 30% of the economy’s growth since the recession ended.

Noting impressive growth in recent months, it cites February’s data from the Institute for Supply Management (ISM) showing manufacturing activity at its highest level since May 2004.

Recent data suggest that manufacturing momentum may slow in the months ahead, but the report says this is likely to be a short-lived phenomenon. With low interest rates and pent up demand supporting demand for manufactured goods at home, and a continued global recovery supporting exports, manufacturing is likely to remain a key source of economic growth in 2011.

TD Economics attributes the “outsized contribution” of manufacturing to three factors: an initial strong contribution from inventory investment, rising demand for durable goods both at home and abroad, and an underperformance in housing and services relative to past economic recoveries.

Supported by record low interest rates and stimulative tax policy, TD Economics predicts manufacturing will continue to play a leading role in the recovery over the next year, “but this disproportionate contribution is destined to fade in 2012, as others sectors show a stronger performance.”

There will be short-term disruptions through this year. But supply hold ups related to Japan’s recovery from the March 11 earthquake, tsunami and nuclear emergency will likely prove temporary. As the long process of rebuilding Japan begins, TD Economics says this could eventually increase demand for US capital goods. But even with slower growth in Japan, the global economy is expected to grow by nearly 4% this year and next.

Click here for the report.

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