The manufacturing sector’s rebound has been one of the major linchpins for the broader U.S. economic recovery. Indeed, manufacturing has been the only sector close enough to exhibit a textbook V-shaped recovery, although the current rebound doesn’t quite stack up to the sharp V-shaped recoveries we had back in the good ol’ days. Even with a sluggish reading for June 2010, manufacturing output has climbed nearly 9 percent since bottoming out a year ago and registered an annualized increase of more than 8 percent during the second quarter of 2010. Factories are operating at a higher rate, with capacity utilization climbing to 71.5 percent in 2010Q2—its highest reading since late 2008. Despite these improvements, the sector has some ground to cover before it can recoup the full magnitude of losses that occurred during the recession. Moreover, this task will become all the more difficult since the inventory replenishment cycle largely has run its course and early-stage pent-up demand is beginning to slow down.

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