Now that the distortive effects of “cash for clunkers” have finally worked their way out of the data, we can make a better assessment of whether things are getting better or worse for the manufacturing sector. Well, so far so good. Total manufacturing output surged 1.1 percent during November and the gains weren’t just centered in a handful of industries such as autos or high-tech equipment, as basic core output jumped at an identical 1.1 percent rate versus October.
While the climb in factory output during four of the last five months is a positive trend and offers a strong signal that the worst is over for manufacturers, it should not be taken as some signal of an impending boom in activity. Most of these recent gains were expected as businesses have started to replenish incredibly lean inventories and automakers had to re-start plants that had been idled since the summer. As these temporal boosts fade over the course of the next two quarters or so, investment and export demand will be the key factors in determining how strong the sector’s recovery will be.