OUR THOUGHTS ON:

Manufacturing to Improve in 2011

Manufacturing

By Donald Applegarth

Based upon the latest industry data provided by First Research, manufacturing in the US is poised to improve in 2011.

Some of the details include:

Total US manufacturers' shipments, which indicate manufacturing sector activity, rose 9.3 percent in the first ten months of 2010 compared to the same period in 2009.

The spot price of crude oil, which indicates energy prices paid by manufacturers, jumped 23.8 percent in the week ending December 10, 2010, compared to the same week in 2009.

US manufacturing activity is expected to grow in 2011, according to a recent forecast by the Institute for Supply Management (ISM). Manufacturing revenue is predicted to increase 5.6 percent in 2011 compared to 2010;

16 of the 18 manufacturing industries tracked by the ISM should see revenues rise in 2011.

Industries expecting the most growth include primary metals; fabricated metal parts; petroleum and coal products; apparel, leather, and allied products; and transportation equipment.

Respondents to the ISM survey believe capital expenditures will rise by 14.5 percent in 2011, compared to a 5.9 percent increase in 2010.

Manufacturing employment should grow nearly 2 percent, and labor and benefits costs will rise at about the same rate. Manufacturers expect their costs to increase about 4 percent in 2011.

Keep an Eye on China
Consumer consumption in China has risen by more than 9 percent per year for the last decade, according to the Los Angeles Times. For years many Chinese could not afford the consumer items made in China's factories, and surplus goods were exported to markets like the US. Low wages kept Chinese goods cheap, and made it difficult for many US manufacturers to compete.

The US Treasury is hoping increased consumption in China will leave fewer goods available for export. The Chinese government also wants to boost consumption by improving wages, increasing urbanization, and developing a financial safety net so consumers are more willing to spend.

Experts expect China's consumption to rise for the next five to ten years as demand for manufactured goods spreads beyond the large cities. Ongoing demand for consumer goods in China might not only stem the flood of cheap exports to the US market, but also stimulate demand for US goods. In 2009 China overtook the US as the world's largest car market, and it is the world's second-largest market for luxury goods.

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