After enduring the deepest economic downturn of the postwar era, manufacturers are finally beginning to see some signs of recovery. For the second month in a row, industrial production and capacity utilization have posted decent-sized gains. A temporary rebound in the auto industry, thanks in part to "cash for clunkers" demand, certainly helped; however, industrial output from manufacturers outside of the automotive sector also rose in July and August.

The main question going forward, of course, will be whether this nascent recovery hangs around or not. Some of the recent growth in output can be attributed to firms rebuilding lean inventories following a period of severe drawdown, but one or two quarters of inventory-related production growth will be insufficient to trigger a self-sustaining recovery in the manufacturing sector. Rebounds in business capital investment and global export demand, and a healthier consumer base, will be needed to keep manufacturing from sinking back into a slump.


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