Fed: U.S. Manufacturing Closed 2011 on a High Note

Manufacturing is a bright spot in the Federal Reserve's mostly positive data on U.S. industrial production and capacity utilization for December 2011. However, the outlook for 2012 is muted by the threat of a recession in Europe and a slowdown in China.

Manufacturing is a bright spot in the Federal Reserve's mostly positive data on U.S. industrial production and capacity utilization for December 2011.

Overall, U.S. industrial production increased by 0.4% in December -- slightly below expectations -- capping the 10th consecutive quarter of improvement, according to the data, which the Fed released Wednesday.

Manufacturing, which the Fed considers one of three subsets of the U.S. industrial sector, posted a 0.9% increase in production in December -- up 3.7% from December 2010.

For the fourth quarter, manufacturing production increased at an annual rate of 3.9%.

Paul Edelstein, director of financial economics for IHS Global Insight, hailed the numbers as a sign that manufacturing roared back in December.

"It was a particularly strong month for manufacturers," Edelstein said. "Consumer products bounced back, while demand for business equipment remained robust."

The December uptick in manufacturing output "more than offset" the 0.4% drop in manufacturing production reported in November, asserted Daniel Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation (MAPI).

"Manufacturing experienced strong growth in December and was distributed across many industries within the sector," Meckstroth said. "Fourteen major manufacturing industries grew while only six industries declined in December.

"The increases were significant in both the durable-goods (0.9%) and nondurable-goods sectors (0.8%)."

Still, the wobbly economic recovery tapped the brakes on manufacturing output growth for the year, which slowed from 7% in 2010 to 4% in 2011, Edelstein pointed out.

"Factory production hit a growth pocket in the spring but bounced back more recently thanks to strength in China that was augmented by resilience in domestic consumer and business demand," Edelstein said.

Outlook: Cloudy

Preliminary indications from January regional manufacturing surveys point to a strong start for U.S. manufacturing in 2012, but Edelstein worries that the global economy could hold the sector back.

"The concern is that with China's latest GDP report showing slower growth and the eurozone slipping back into recession, the U.S. consumer could be the 'last man standing' for U.S. manufacturing this year," Edelstein said. "This is not a bright prospect."

Meanwhile, MAPI projects that U.S. manufacturing production will expand at a 3.4% rate in 2012 -- outpacing the "modest" 2.1% that the association predicts for the overall U.S. economy.

"The superior growth in manufacturing comes from pent-up demand for motor vehicles, the need to upgrade business equipment, and more investment in energy and mineral exploration," Meckstroth said.

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