Manufacturing Continues to Show Signs of Recovery as Durable Goods Orders Rise

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Researched by Industrial Info Resources (Sugar Land, Texas)--As the U.S. recession enters its 21st month, economists, businesses and consumers are seeking signs of a recovery. With both national unemployment and the housing market showing signs of stabilization, everyone is looking to industry for signs of growth. The Commerce Department reported on Wednesday that orders for goods expected to last at least three years increased 4.9% in July, the third rise in a four-month period, indicating that the economy may be ready to begin the trek back to overall stability and prosperity.

Click here for a regional breakdown of planned industrial projects from September through December 2009.

While the economic situation is still somewhat volatile--with an unemployment rate of 9.4%, an automotive sector that is a long way from true profitability, and a stimulus bill that has not lived up to its initial billing--the fact that durable goods orders are on the rise is a good indicator that a turnaround could be in the early stages. Orders for transportation equipment rose 18.4% in July and, coupled with a 0.9% increase in motor vehicle and commercial aircraft orders, drove the durable goods numbers up.

The "Cash for Clunkers" program, which just concluded, certainly helped the automotive sector increase sales, at least for a single month. While there are numerous problems with the program, especially on the downstream end, "Cash for Clunkers" did accomplish its main goals: to get older vehicles off the roads and to boost automotive sales for a short time. While these sales increases probably will not last without the program in place, Detroit's "Big Three" were forced to ramp up production to maintain supplies to meet the needs of the program, which is good for the economy.

A look at overall capital and maintenance spending for the last four months of 2009 shows a slight improvement in expenditures as well, another indication that the business sector is feeling comfortable enough to spend money again. During the first eight months of the year, just less than 2,200 capital and maintenance projects worth a total of $125.4 billion either began construction or were placed on hold, mainly because of economic concerns. This averages to $15.6 billion a month in expenditures. For the months of September through December, 1,500 capital and maintenance projects worth $71.3 billion are scheduled to begin construction, which gives those four months a monthly spending average of $17.8 billion.

While this increase in total spending is not large, it is still an increase and does indicate that businesses are willing to bet on a recovering economy a little more so than they were earlier in the year. A look ahead at proposed spending for the first quarter in 2010 shows 1,400 capital and maintenance projects worth an estimated $71.3 billion are scheduled to begin in that period. This brings the monthly spending average up to $23.7 billion, a significant increase over 2009.

While these durable goods orders, as well as slight increases in home prices and other economic indicators, certainly do not mean that the recession is coming to an end in the next few months, they are good indicators that the decline is slowing and spending is increasing. Hopefully, the spending trend will continue throughout 2010 as companies feel increasingly confident that it is OK to invest in this country again. While the recession has hit almost every sector of business and manufacturing hard, albeit in different ways, the U.S. appears to have weathered the recession and will recover sooner rather than later. Hopefully, the durable goods orders will continue to rise throughout the balance of the year and spending will increase as well, ending the recession that much sooner.

Industrial Info Resources (IIR) is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy related markets. For more than 26 years, Industrial Info has provided plant and project opportunity databases, market forecasts, high resolution maps, and daily industry news.