Quality Magazine

MANUFACTURERS OPTIMISTIC ABOUT ECONOMY

August 1, 2003

WASHINGTON—A recent study by the National Association of Manufacturers (NAM) found that orders are on the upswing and that various positive trends are setting the stage for stronger economic growth later this year that will include an improvement in manufacturing.

Currently, however, manufacturing overall remains stalled and the economy sluggish. “Manufacturing production has been on the decline since last August, capital spending declined in the first quarter, unemployment rose to 6%, and global growth is sluggish, says Jerry Jasinowski, NAM’s president.

But the trend is upward. In NAM’s survey of its membership, 40% of respondents said that orders increased in May and only 24% reported falling orders. “This is a significant improvement from a similar NAM survey in April when 56% of respondents reported declining orders for the month,” says David Huether, NAM’s chief economist.

For June, 43% expected orders to increase, while those expecting lower orders declined to just 12%. “This signals that conditions are gradually improving in manufacturing and conform to our outlook that manufacturing production should begin to recover in the third quarter,” Huether says.

Low inventories, improving credit conditions, lower energy prices, a more competitive dollar exchange rate, increased defense spending and tax cuts will improve business and manufacturing in the months ahead, Jasinowski says. A reduction in business uncertainty and sharply higher consumer confidence will also improve the economic environment.

“Among the most positive forces for manufacturing recovery is improving liquidity and credit conditions,” Jasinowski says. The prime rate is down 50% since 2000 and bank standards for lending have eased significantly. These and other forces, NAM concludes, will increase GDP growth from 1.7% in the first half to 3.9% in the second half.