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In the first quarter, the growth rate of manufacturing output was more than three times higher than the estimated overall economic growth rate of the United States. In the past year, the rebound in manufacturing output was faster than the rebound in consumer demand. This week's series of unexpectedly strong earnings reports highlight this momentum.
Robert A. Dye, a senior economist at PPS Financial Services Group Inc. in Pittsburgh, said that if there is no strong manufacturing industry, the economy can only be considered weak. He believes that the overall economic growth rate in the first quarter is only about 2%.
The stock market reflects this difference. On Wednesday, the Dow Jones Industrial Average price index rose 186.79 points to 12,453.54 points, or 1.5%, the highest closing point since June 2008. Manufacturing stocks were the biggest gainers on Wednesday, with United Technologies Corp. up 4.3%, Caterpillar Inc. up 2.5% and Boeing Co. up 2.6%.
The Nasdaq Composite Index hit its biggest single-day point increase since September last year, rising 57.54 points to 2802.51 points, or 2.1%. Intel Corp. shares soared 7.8%.
Joseph LaVorgna, chief US economist at Deutsche Bank in New York, said manufacturing has grown substantially. He said that the growth rate of manufacturing in the first quarter indicates that other areas of the economy may also improve this year, including the property market. He said that when the manufacturing industry performs well, other economic gains will usually follow. The growth rate of US manufacturing in the first quarter was the highest since 1997.
One of the reasons for the growth in manufacturing is the spending of companies with abundant capital on computers, machinery and other equipment. The sales of chips used in hardware such as server systems in computer data centers are strong, helping to boost Intel's performance. Intel reported a quarterly profit increase of 34% on Tuesday.
Other forces driving manufacturing growth are increased sales of cars and heavy trucks, and construction, agricultural and mining equipment exported to fast-growing markets in China, India and Latin America. The weakening of the dollar has helped drive the US export industry.
On Wednesday, Eaton Corp. and United Technologies Inc. reported strong growth in first-quarter earnings and raised expectations for 2011. Eaton manufactures electrical and hydraulic components for a wide range of industrial, construction and agricultural machinery. UTC's products include Sikorsky helicopters, Otis elevators and Carrier air conditioners.
Even so, there is reason to be vigilant. Gregory Hayes, chief financial officer of United Technologies, told analysts on Wednesday that the world economy has improved, but the recent blows in the Middle East and Japan will test the resilience of recovery.
In addition, strong demand for capital goods such as construction machinery and plant equipment reflects, to a certain extent, the company's delayed purchases during the recession to retain cash.
At present, the rise in food prices has begun to promote global spending on agricultural equipment. Cleveland Eaton’s chief executive, Alexander Cutler, said that I don’t think there is any indication that food prices will fall this year.
Infrastructure projects in China, Latin America, India and Africa will drive demand for construction equipment. In part, sales in emerging markets accounted for 26% of Eaton’s total sales in the first quarter.
Globally, rising metal and oil prices have spurred spending on mining and oil and mineral exploration, driving demand for equipment.
Global demand has begun to drive. The profits of large US manufacturers have increased, and investors have taken advantage of this, not paying attention to high oil prices and concerns about Japan.