Glimmer of hope

I'm always wary of economic indexes that purport to forecast future activity, but the folks at Chapman University are out with an encouraging report about California manufacturing activity in the first quarter. That's right, manufacturing, the one sector that has been on death's door for like, forever. Chapman's composite index is registering 60.6, which is the highest it's been in four years (anything over 50 shows expansion). A year ago the index was 40.9. The results are based on a survey of California purchasing managers and tracks changes in jobs new orders, production, and a bunch of other factors. From the press release:

Production is expected to increase most rapidly in the following industries: Computer & Electronic Products; Aerospace Products & Parts; Wood Products; Primary Metals; Fabricated Metal Products; Machinery; Furniture & Related Products; Miscellaneous; Food; Paper; Printing & Related Support Activities; Chemicals; and Plastics & Rubber Products; No industry reported an expected decrease in production in the first quarter of 2010.

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Employment is expected to increase most rapidly in the following industries: Computer & Electronic Products; Primary Metals; Furniture & Related Products; Miscellaneous; Paper; Chemicals; and Plastics & Rubber Products. Employment is expected to decline most rapidly in the following industries: Nonmetallic Mineral Products; Transportation Equipment; Apparel; and Printing & Related Support Activities.

The question everyone seems to be wrestling with is where the new business will be coming from. Manufacturing in the U.S. expanded in December for the fifth straight month, largely the result of businesses rebuilding inventories. Optimists point to an export boom, fueled by still-heavy demand in China and elsewhere. California could play a big role in that export activity. But pessimists warn that exports alone won't spearhead the recovery. In other words, at some point American consumers and businesses will have to start spending again - and so far there's little sign of that happening. From the NYT:

Americans are saturated in debt and nervous about job prospects, prompting many to hunker down in a mode of thrift; businesses still spooked by dysfunction in the financial system are reluctant to hire more workers until recovery proves real; and a cataclysmic drop in home prices has diminished spending power in millions of households, with another decline possible as foreclosed properties surge onto the market. "You come back to the unfortunate reality that the underlying problems are still very much there," said Joshua Shapiro, chief United States economist at the market research firm MFR Inc. "It's going to be a long grind."

Today's jobs report would seem to suggest as much, though good luck trying to make sense of the topsy-turvy economic data. Most economists won't admit as much, but this is largely an exercise in guesswork.

Photo: Boeing C-17 assembly plant