In recent weeks, it has been fashionable (and even rational) to fret about the U.S. industrial economy. Sure, consumers are doing better. But businesses, who are freaked out by the fiscal crisis, and who are being impacted by slow growth outside the U.S., aren’t doing quite as well. And that could put a damper on growth. Earlier this week, for example, the Commerce Department reported that exports fell in October.
Friday morning, however, we got two pieces of data that should allay those concerns, at least for now. First, Markit published its flash manufacturing purchasing managers index (PMI). This data point, which is not be confused with the more popular ISM purchasing managers index, is a relatively crude one. They call up managers at companies and ask if their business, orders, employment, and exports are expanding this month or declining. A reading of above 50 indicates the sector is expanding. A reading below 50 indicates the sector is declining.
Markit’s manufacturing reading came in at 54.2, better than expectations. This represented an eight-month high, a reversal of the recent declining trend. And it suggests that a fair amount of November’s weakness was due to the aftermath of Sandy, not to something fundamentally wrong in the U.S. manufacturing economy. The index found that new orders, exports, and employment are all growing more rapidly than they were in November.
At roughly the same time, the Federal Reserve reported its November readings for industrial production and capacity utilization. The release can be seen here. Here, again, the news was surprisingly positive. In November, industrial production rose 1.1 percent, after having fallen .7 percent in October. Compared with November 2012, industrial production was up 2. 5 percent. In other words, despite the damage caused by Sandy, America’s mines, utilities, and factories increased their output at a decent clip in November.
In addition, there was good news on the capacity utilization front. Capacity utilization refers to the amount of the nation’s productive capacity that is in use in any given month. The higher the reading the better. It means less stuff and equipment (and people) are sitting around not doing anything. Capacity utilization rose in November to 78.4 percent, from 77.7 percent in October. That’s still below the levels of 2007. But it represents progress. And it is even more impressive when you consider that industrial capacity has actually grown in the U.S in the past year. Compared with a year ago, we have more invested in productive capacity, and more of it is being used.
All of which is further evidence that the drama over the fiscal cliff has not been inhibiting work around the country to a substantial degree.