South-Western College Publishing - Economics  
American Factories Race to Meet Demand
Subject Economic Growth and Job Creation
Topic Productivity and Growth
Key Words Economic Growth, Job Creation, and Manufacturing Activity
News Story

In some good economic news, the Institute of Supply Management reported a surge in new orders and a large jump in production across the board in most manufacturing industries. The data, based on a survey of purchasing managers, provides important evidence that a three-year slump in manufacturing may finally be ending. The institute's index indicated that manufacturing activity rose to the highest level since December of 1983; this was much higher than most economists expected.

An even bigger surprise was the indication that manufacturers appear ready to create jobs and hire workers after three long years of cutting factory payrolls. In commenting on the report, Norbert J. Ore, director of procurement at the Georgia-Pacific Corporation and chairman of the institute stated, "I think this speaks to the strength of the economy right now, but it also speaks to the confidence of companies."

Speaking at a fund-raising event in Dearborn, Michigan, President Bush echoed the findings and suggested that his strategy of lower taxes had helped revive the sagging economy. "Our economy was strong and it is getting stronger," Mr. Bush said. "Productivity is high; business investment is strong; housing construction is strong. The tax relief we passed is working."

The actual computation of the index, based on the answers given by purchasing executives, indicated that business activity increased from a reading of 57 in October to 62.8 in November. An index above 50 is considered to indicate expanding production activity, and an index below 50 indicates contraction in production activity. If production continues to increase at the November level, the institute predicts an overall annual economic growth of 7.3 percent.

Previous economic data had indicated that the job market had begun to improve modestly in August and September, but most of that improvement had been in the service industry. The new data by the institute provides strong evidence that manufacturers were also finally ready to start hiring new employees.
American manufacturing jobs have been declining to the tune of two million jobs since the fall of 2001. The expected increase in jobs for November is expected to parallel that for September and October at about 125,000 jobs, but the strong economic growth and firm's willingness to hire should improve that number in the near future. The economy needs to create more than 200,000 jobs each month in order to see the unemployment rate drop significantly.

(Updated February, 2004)


Explain why the demand for labor is a "derived demand".

2. Why is new job creation important for a sustainable recovery?
3. Using any source available, find and compare the unemployment rates for November 2002 and for November 2003.
Source Edmund L. Andrews and Floyd Norris, "Manufacturing at Highest Level in Two Decades," The New York Times Online, December 2, 2003.

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