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Fundamentally Speaking: Promising Signs in Manufacturing News

04/17/2013 | By Allen Kenney

In the latest edition Fundamentally Speaking, Calvin Schnure, NAREIT’s vice president of research and industry information, discussed some positive news in the latest manufacturing statistics.

Schnure contrasted the manufacturing numbers with the underwhelming employment released earlier this month.

“The March employment report was very disappointing, including a drop in manufacturing payrolls,” he said. “The latest news in manufacturing actually offset some of the weakness that we saw in the employment report earlier.”

Schnure noted that manufacturing output dipped slightly in March, but the drop came after significant gains in February. Overall, manufacturing output increased 5.2 percent in the first quarter of 2013.

Schnure offered some observations about the strongest sectors in the latest manufacturing report. The numbers signal improvement in the housing market, according to Schnure.

“Wood products and non-metallic minerals posted very good growth, and they’re up over the past year,” he said. “This is part of the rebound in housing construction. As home sales and housing starts rebound, they’re having an impact on a lot of other manufacturing industries.”

Production of motor vehicles also increased. “Consumers continue to buy big-ticket items, including cars,” Schnure said.

Overall, Schnure characterized the manufacturing recovery as “broad-based.” He pointed out that two-thirds of manufacturing industries are showing stronger growth than they were six months ago.

“This is giving confidence that we have a durable, long-lasting economic recovery that is building, despite the drag that we’re going to feel from the sequester and the payroll tax,” he said. “That will be a transitory drag on top of a broad-based recovery.”

Schnure said the latest production results represent good news for the commercial real estate market, especially the industrial sector.

“Manufacturers are increasing their capacity,” said Schnure, including adding more plants to meet growing demand. “REITs have spaces that, in many ways, support the industrial output—they have warehousing, transportation, flex facilities. This is indicating that there is increasing demand for those as well. This is one more piece in the puzzle of how the long-run economic recovery helps support commercial property. It looks reasonably good going forward.”