This column, which originally ran as the Ahead of the Tape, has been updated with the actual figures.
The recovery in U.S. manufacturing appears to be gaining steam.
After a week of trans-Atlantic scrutiny on the faltering European economy, attention is now shifting back toward the U.S. as investors look for reassurance that the recovery in the world’s biggest economy still is in gear.
Nerves were calmed somewhat Tuesday morning when the Federal Reserve Bank of New York released its survey of regional manufacturing activity, a volatile but timely gauge of factory output that has been in positive territory now for seven months through February.
The index jumped to a reading of 24.9 in February, sharply above the 16 forecasters expected, from 15.9 in January.
The broader rebound in U.S. manufacturing activity has been one sign that the economic recovery is gathering strength, despite high unemployment and a still-weak housing market. In January, the Institute for Supply Management’s gauge of national factory activity rose to 58.4, its highest level in six years, from a low of 32.5 in December 2008.
That strength should be corroborated Wednesday when the Federal Reserve’s report on production at U.S. factories, utilities and mines is expected to show an overall gain of nearly 1% in January, the most since August, when the cash-for-clunkers program helped to boost output by 1.3% from the prior month.
A rebound in U.S. and foreign demand for manufactured goods is driving the sector’s strength. Surprisingly strong January retail-sales figures, released last week, suggest U.S. consumer spending could gain nearly 3% this quarter, after 2% in the fourth quarter. Companies have moved swiftly to rebuild inventories to match that demand, and manufacturing employment in January rose for the first time in three years.
The brightening jobs picture was echoed in Tuesdays Empire State survey: In response to a series of special questions, some 64% of respondents expected their companies’ workforce to increase in the year ahead, while just 10% predicted declines in the number of full-time workers.
On Thursday, the Federal Reserve Bank of Philadelphia is expected to report its sixth month in a row of regional manufacturing expansion, according to economists surveyed by Dow Jones.
There is a risk that the recent spell of unusually cold and snowy weather could temporarily halt the sector’s rebound and depress results. Mother Nature, it seems, may be the only force strong enough to keep the industry from plowing ahead.