SCDigest Editorial Staff

Although a bit uneven, the manufacturing sector appears to be recovering nicely across the globe, fueling hopes for a lasting and maybe even rapid economic recovery from this point on.

On the increasingly bullish environment, manufacturers in the US are increasing their spending on technology – though most are still slow to hire back workers.

In separately released Purchasing Managers Indexes in the US and China last week, the news continued to be good, with a rise in the US PMI to its highest level since 2004, and the China PMI indicating its manufacturing sector grew for the 13th consecutive month. (See also Understanding the PMI and other Indexes from the Institute for Supply Management.)

"At over 59 percent, the ISM index is at the highest level since the recovery began in July 2009 and is very close to highs achieved in previous cycles.  All the individual indicators in the report are overwhelmingly positive and the vast majority of manufacturing industries covered are reporting growth," said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI.

Meanwhile, the Association for Manufacturing Technology and AMTDA, the American Machine Tool Distributors’ Association, said that spending on technology by manufacturers in the US is growing apace, with investment up more than 22% for the first two months of 2010.

The news has also been mostly good from Europe. In the 16-nation euro zone, the PMI for manufacturers rose to 56.6 in March, from 54.2 in February, reaching its highest levels since late 2006.

Germany, which accounts for about 30% of euro-zone production, saw its country PMI index rise to 60.2 in March from 57.2 in February. Britain, France, and Italy have also all seen at least several consecutive months of PMI growth. (A number over 50 for the PMI indicates manufacturing expansion.)

Japan had a blip in February, when it was reported in late March that production for the month fell .9%, but that small drop followed 11 consecutive months of production increases in Japan.

However, even with this period of growth, total production remains below pre-recession levels in the US and Europe. Production is still some 12% below the previous high in the US, and in Europe it is still is 16% below the output peak reached in April, 2008. China and some other Asian countries have already exceeded pre-recession highs in terms of manufacturing output and are charting new records.

Everyone Looking for Export Growth

The interesting thing is that their domestic economies are still relatively weak for many manufacturers, leading to a strong focus on increasing global sales for a significant percentage of them – primarily to the faster growing developing economies.

(Manufacturing Article - Continued Below)

In Europe, for example, "The combination of rising demand in key export markets and a competitive exchange rate has helped to boost manufacturing growth pace seen only once before in the past 10 years," said Chris Williamson, chief euro-zone economist for Markit, a financial services firm in Europe.

The Wall Street Journal quotes Tim Sullivan, CEO of Bucyrus International Inc., a Milwaukee-based manufacturer of mining machinery, as stating that "The world has gotten smaller, and a lot of us are much more global," noting that about 80% of its business comes from exports, mostly Brazil, Russia, India and China.

US PMI for March Showed Strong Growth in Manufacturing

Source: Institute for Supply Management

Japan’s economic ministry also sites demand for Japanese exports, especially to China, as the key to its recent resurgence in manufacturing, even as its domestic market remains largely stagnant.

That export dynamic is manifesting itself in China, where officials reported this week that the country experienced a net trade deficit in March for the first time in six years. While that deficit trade position is likely to be very short lived, it is nevertheless indicative of an overall drop in China’s trade position.

With the numbers from March, China’s total trade surplus for the first quarter of 2010 was down 77% from a year earlier to just $14.49 billion – a far cry from the type of surpluses it was ringing up a few years ago.

However, that is more a reflection of a huge spike in imports, especially to fuel China’s aggressive stimulus program that focused largely on construction projects, and inflation of some 17% in import prices due to higher prices on many of those commodities and raw materials. Even as the country’s trade numbers fell into a deficit, its exports were still up an incredibly strong 24% in March, though that was down from the 31% growth in exports in January and February.

Do you see real signs of economic growth, especially in the manufacturing sector? How long can US and Western countries rely on exports without a strong domestic market? How can China's own exports still be growing at 20-30%? Let us know your thoughts at the Feedback button below.

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