Business, Economics and Jobs

Global economy: grease is the word


BOSTON — The business world is abuzz with Apple's magical new iPad, set for worldwide release today.

This column is not about that.

That's because the real economic action this week took place not in Apple's shimmering and idealized high tech utopia, but rather, in the greasy and grimy world of manufacturing.

No, it's not as sexy as a Steve Jobs marketing orgy. But it is more important.

It turns out the world's factories are churning fiercely again, from the U.S., to China to Europe and beyond. And that's a very good thing.

On Thursday, the U.S. Institute of Supply Management said its index that measures factory output — all the widgets, sprockets and everything else manufactured in the U.S. — rose in March for the eighth consecutive month. That index is also growing at its fastest rate in almost six years.

The manufacturing boom is being driven by several factors, including gains in orders and production — the result of people and companies wanting more stuff — as well as bigger inventories, which grew for the first time in almost four years.

The rebound in manufacturing is deep. It is also wide. In fact, 17 of the 18 manufacturing industries measured by this closely watched monthly survey showed improvement (sorry, plastics and rubber fans).

"The report is very positive on all points," Dan Meckstroth, a chief economist with the Manufactures Alliance, told CNNMoney. "The index itself is at its best we've seen so far in this recovery."

But the good news isn't just happening in the U.S., the world's largest economy.

Manufacturing activity in China this year is growing at a record rate. India is booming, too. Meanwhile, U.K. factory output is growing at its fastest rate in 16 years. Factories in the so-called eurozone are chugging along at a four-year high, thanks to a record jump in Germany and big gains in France, Italy, the Netherlands and Austria. Even Spain and Ireland, for crying out loud, are growing their manufacturing sectors again.

All of this bodes well for the global economy.

That's because manufacturing growth is an important indicator of broader economic strength. Almost 22 percent of the U.S. economy, for example, comes from manufacturing. China and Germany rely heavily on the sector, too. So it is a very good thing to have a big chunk of this global economic engine feeling better.

It's also heartening to see the world's automotive industry bounce back. All the major automakers reported strong sales for March, thanks to big incentives. Ford's sales rose 40 percent. Total sales at General Motors climbed 21 percent. Nissan sales jumped 43 percent, Honda's rose 22 percent, while scandal-plagued Toyota said its March sales increased 41 percent from a year ago.

All of these sales gains, of course, mean that automakers will need to build more vehicles. And, indeed, Japanese automakers this week said that global production surged 83 percent in February from last year.

But even more important, overall manufacturing strength can help lessen the biggest problem the U.S. and many other economies face: high unemployment.

That's because as demand picks up around the world — and it clearly is improving — the companies that make stuff tend to hire more people.

In fact, we saw this in Friday's U.S. jobs report for March. Some 17,000 manufacturing jobs were added to the economy last month. So far this year manufacturing has produced 45,000 jobs in the U.S.

For recovery to take root — here and around the world — people need to work. The logic chain is pretty simple: no jobs, no spending. No spending, no economic growth.

Of course, manufacturing is no magic bullet. Plenty of risks still face the global economy, from inflation worries (manufacturing costs have been rising along with demand), to currency valuation fights (hello, Chinese yuan), to continued weakness in real estate and beyond. Moreover, these gains in manufacturing first began last June. There is no guarantee they will continue.

But thanks to dull and dirty manufacturing, the world is now in a much happier place than just a few short months ago.

And you don't need an iPad to understand that.