C Marshall Fabrication Machinery, Inc.

U.S. Manufacturing Starts to Pick Up

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By Ed Crooks and Hal Weitzman, FT.com
February 7, 2011 — Updated 0129 GMT (0929 HKT)

(FT) — Demand for capital equipment in the US is starting to pick up strongly, manufacturers say, boosting confidence in the health of the economic recovery and raising hopes of a revival in American industry.

Comments in recent days from many of the leading manufacturers of capital goods — including factory equipment, earthmovers and truck components — have suggested that while the fastest growth is still likely to be in emerging economies, they also expect significant growth in US sales.

Emerson, the Missouri-based manufacturer of industrial equipment, told investors at the end of last week that it expected non-residential investment in the US to grow by 8-9 per cent this year; as much as the average for emerging markets.

The company said it expected that the pressure to cut costs and expand capacity would encourage many industries to raise their capital spending this year — and companies that cut investment sharply during the downturn would be forced to catch up, replacing worn-out and obsolete equipment.

David Cote, chief executive of Honeywell, which makes aircraft and vehicle components and industrial equipment, told the Financial Times: “I do believe the US economy is more resilient now. Barring any unforeseen circumstances, we’re on the comeback trail.”

Caterpillar, the world’s biggest manufacturer of earthmoving equipment, is raising its capital spending budget from $1.7bn in 2010 to $3bn this year. More than half of the budget will be spent in the US to build capacity, going towards projects such as an excavator factory in Texas and a motor-grader facility in Arkansas.

“If you look at our 2011 outlook, it’s still with the US, Europe and Japan well off historical peaks,” Ed Rapp, Caterpillar’s chief financial officer, told the FT. “So, in this cycle, we have tried to get ahead of some of that, to put the investment in place now. That way when we get a more robust recovery in the developed world, we’ll be ready.”

Eaton, the Ohio-based manufacturer of industrial equipment and components, has said it expected its US sales to grow faster than its international sales this year. Sandy Cutler, Eaton’s chief executive, told the FT that demand was “far stronger than people had thought it would be”.

The Institute of Supply Management survey released last week pointed to the fastest rate of growth for manufacturing industry since 2004.

Barry Knapp, strategist at Barclays Capital, said two factors contributed to the upturn in confidence since last summer: the Federal Reserve’s bond-buying programme and signs of a more business-friendly approach from Congress.


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