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By Jason Stipp | 12-01-2010 02:09 PM

No Cliff Dive for Manufacturing

Although manufacturing data is less important at this stage of the cycle, recent numbers show the sector is holding up pretty well, says Morningstar's Bob Johnson.

Jason Stipp: I'm Jason Stipp for Morningstar. A lot of market watchers recently have been worried about a slowdown in manufacturing. But we got some data this week that shows manufacturing might be holding up better than expected. Here with me to talk about those numbers and his outlook is Morningstar's Bob Johnson, Director of Economic Analysis.

Thanks for joining me, Bob.

Bob Johnson: Great to be here.

Stipp: So, manufacturing, and you've written about this recently, this isn't something that you've been as keenly focused on recently, why is that the manufacturing numbers have perhaps taken on a little bit less importance right now than maybe they had earlier on?

Johnson: Early on, you get this kind of big bounce back effect, manufacturing, when you go into a slump, just absolutely falls to pieces, down 20%, 30%, and then you hit bottom and it comes rapidly back and you have these stunning year-over-year growth rates that are really impressive. What happens is as the recovery matures, that easy bounce back money is gone and the growth rates, it look like 20, then 15, and then 10, and everybody is like, 'oh, the sky is falling. Look at how fast the growth is slowing.'

But frankly, over time, manufacturing has to grow at about the same rate as consumption grows. And they get out of whack once a while and you need some adjustments. So, we've had that adjustment phase in manufacturing, we've had some stellar growth. And now what you really need to sustain that growth is consumer spending, so we're much more focused on what the consumer is doing right now than what manufacturing is doing.

Stipp: Consumer taking on increasing importance. So, we did get some data this week that say, on manufacturing that didn't look too bad, in fact, it looked pretty good. Some of that data came from overseas in Europe, this is an area obviously a lot of people have been concerned about recently, but what are the manufacturing numbers saying about what's going on in Europe?

Johnson: Well, you know what, the numbers across the board were strong internationally. And I'm really pleased to see that. I mean, it was U.K., France, Germany, reported index is up over 50, which indicates growth and they accelerated from the prior month. So that's great to see, and everybody is worried Europe is falling apart, there is no hope for Europe, and yet we're seeing this accelerating manufacturing number out of Europe, and that's great, along with some pretty good sentiment numbers from consumers. So, here market analysts are all worried about what's happening in Europe, but the people in Europe are actually more bullish than they've been in some time.

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