Manufacturing output surged by 1 percent in January the Federal Reserve reported today — the fastest pace in five months — due in large part to temporary boosts from inventory rebuilding and the extension of the homebuyer’s tax credit. Of the 19 major manufacturing industries, 16 posted production gains last month, signaling that the manufacturing recovery is broadening. While recent signs are encouraging, the recovery is unlikely to be sustainable at this rapid pace as much of it was driven by short-term inventory and one-time government spending.
A more durable source for growth has been the global economic recovery which, combined with a competitive dollar, is powering export growth in manufactured products. The current export surge stands in stark contrast to the early stages of the last recovery in 2002, when sluggish growth abroad and an overvalued dollar conspired to depress export growth until the middle of 2003. With global conditions improving, the time is ripe for Congress to pass a number of free trade agreements that would break down more barriers for U.S. exports and create jobs.
Looking ahead, the strength and durability of the manufacturing recovery will depend on the global competitiveness of U.S. companies.