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U.S. Manufacturing Rebound?

Prices of industrial commodities are rising swiftly, signaling that the manufacturing economy is rebounding. But one question still remains: When is that rebound going to be seen in the United States?

The demand for copper and other metals, textiles, rubber, plywood red oak, and crude oil and other petroleum products is pushing up the Journal of Commerce-Economic Cycle Research Institute index of 18 commodities at a 14 percent rate, a hefty acceleration since the index's recent low on May 13.

And the growth is not isolated in one sector; it is across the board. The growth rate in prices in the metals sector has jumped to 14 percent currently from 4.8 percent on May 13, while the pace in the textile sector has moved to 9.3 percent from 5.6 percent.

"This is suggesting there is real strength in the industrial economy," said Anirvan Banerji, director of research at the Economic Cycle Research Institute.

"The ambiguity here is which industrial economy it is," he said. Recent economic data indicates that the manufacturing pickup is outside the United States, especially in China.

Jobs in the manufacturing sector in the United States are still on the decline, falling by 56,000 in June, while jobs in other sectors, including services and construction, increased. Since the overall payroll jobs peaked in February 2001, 90 percent of the 2.6 million jobs lost have been in manufacturing.

Economists who are forecasting an economic rebound and President Bush, who needs a rebound as a backdrop to his re-election campaign, have all been waiting for some time for a turnaround in the manufacturing sector, which has lost about 2.3 million jobs since February 2001. Without a turnabout, unemployment will continue to be a drag on consumer spending and consumer confidence.

All this makes the July employment report and the July manufacturing index from the Institute for Supply Management, both due on Friday, especially interesting. But forecasters are not expecting a lot of good news.

Wall Street's current consensus forecast for the manufacturing index is 52, according to Bloomberg News. A number over 50 means the manufacturing sector is expanding. So that is positive. In addition, the lowest reading among the 65 analysts' forecasts in the survey is 50.1.

But even if the forecast is right, 52 is still below the 55.20 of last December and would only be the first plus-50 reading since February.

As for manufacturing jobs in the employment report, the consensus forecast is for a decline of 33,000, while overall payroll jobs are expected to rise by 10,000. Of the 16 economists' predictions for manufacturing jobs, none call for an increase in payrolls, with the smallest decline at 10,000.

So it is no mystery why President Bush sent his economic team of Treasury Secretary John W. Snow, Commerce Secretary Donald L. Evans and Labor Secretary Elaine L. Chao on a two-day road trip to Wisconsin and Minnesota to talk up the economy.

Mr. Snow said he still expected the economy to be stronger in the months ahead. But the consumer confidence decline makes it more likely that the jobs forecasts for the July employment report on Friday could be even less encouraging.