With the cliff averted, U.S. manufacturers are in a better place

January 3, 2013

Handshakes at the highest level of government may have prevented the U.S. from slipping back into recession, but U.S. manufacturers are not breaking open the champagne just yet, according to The Associated Press.

The fiscal cliff was seen by many economists to be a distinct threat to the growth of the industry, and although it appears that the potential for financial disruption has passed, there are some concerns that the future may not be as bright as first hoped. Manufacturing companies are still wary of expanding their workforce or planning more than a few months ahead, with lean enterprise still very much in evidence.

Industry analysts have acknowledged that the ink on the fiscal cliff deal is still wet, while the release of the U.S. Manufacturing Purchasing Managers Index on January 2 showed that the sector expanded in December, despite the concerns over the cliff. However, the Institute of Supply Management's index for manufacturing activity painted a slightly more somber picture, revealing that a contraction in November had only slightly improved at the end of the year, with new order levels unchanged and production growing at a slower pace than hoped.

"We are in a better place than we were a couple of days ago," noted Chad Moutray, chief economist for the National Association of Manufacturers, a day after Congress sent President Barack Obama the high-profile legislation. "But we really haven't dealt with the debt ceiling or tax reform or entitlement spending."

Despite the cautious stance being adopted by manufacturers, there are signs that the economy will continue to improve in the next few months. The major contributor to this is the automobile industry, with Americans expected to buy more cars in 2013. Sales expected to rise in the next 12 months, according to Polk Research, beating last year's figure of 14.5 million by as much as 7 percent.

Finally, there is the housing industry, long seen as an accurate barometer of consumer confidence and domestic spending ability. This is also looking increasingly robust with sales of new homes in November reaching their highest level for nearly three years. Prices have also started to rebound, with low mortgage rates spurring demand and encouraging developers to start building again, with reports suggesting that new construction was likely to be at its highest level for four years.

"When you have a housing recovery, it's nearly impossible for the U.S. economy to slip into recession," commented Ellen Zentner, senior economist at Nomura Securities, in an interview with the AP.