by Laurie Kaiser

Created on: June 03, 2009   Last Updated: June 11, 2009

While manufacturing has failed to grow for 16 consecutive months, hope glimmers on the horizon. In a report issued June 1, the Institute for Supply Management noted that, for the first time since Nov. 2007, the New Orders Index grew in May. New orders are considered a leading indicator of the manufacturing industry's economic health.

While employment and inventories continue to decline at a rapid rate and the sector continued to contract during the month, there are signs of improvement, said Norbert J. Ore, chairman of the ISM Manufacturing Business Survey Committee.

New orders rose to 51.1 percent in May, up 3.9 percent from April's 47.2 percent. The index bottomed at 23.1 percent last December.

So which companies will sit on the leading edge of the recovery? The quickest rebound is likely to be in the production of liquid crystal display (LCD) glass for televisions and computers, according to BusinessWeek. Best Buy (BBY), the nation's largest home electronics retailer, is reportedly running out of inventory of LCD TVs and is expecting a surge in demand this month. The only North American manufacturer of LCD glass is Corning (GLW).

Because of the $80 billion allocation for infrastructure projects in the Obama stimulus package, highway and other forms of heavy construction will probably account for the biggest portion of the rebound in manufacturing, BusinessWeek reports. Long steel products manufacturers such as Nucor (NUE), Steel Dynamics (STLD) and Commercial Metals (CMC) stand to benefit.

Recovery prospects are bright for electronics manufacturers who focus on energy efficiency. Companies manufacturing light-emitting diode (LED) fixtures, such as Acuity Brands (AYI) and Cooper Industries (CBE), are expected to benefit from the retrofitting of schools and other government facilites with energy-saving products, as outlined in the federal stimulus package. Companies that make LED chips and other components, such as Cree (CREE), should also gain from the shift to these energy-saving devices. In February, Intel (INTC) announced plans to invest $7 billion over the next two years in US manufacturing facilities that use 32 nanometer technology to build faster, smaller chips that consume less energy.

Restoring the manufacturing industry to health won't be easy after the steepest decline in production since World War II. It might be too optimistic to view evidence of stabilization as a sign of widespread recovery.

The ISM's Purchasing Managers Index rose to 42.8 percent in May, up from 40.1 percent in April. A reading below 50 percent indicates the manufacturing economy is generally contracting, while a reading above 50 percent indicates the manufacturing economy is generally expanding.

Five of the 18 manufacturing industries surveyed reported growth in May: Nonmetallic Mineral Products (stone, clay, glass, concrete); Plastics and Rubber Products; Machinery; Food, Beverage and Tobacco Products; Printing and Related Support Activities.

Only Nonmetallic Mineral Products and Food, Beverage and Tobacco Products reported growth in employment. The ISM's employment index registered 34.3 percent in May, slightly lower than April's 34.4 percent. This is the 10th consecutive month of decline in employment, according to the ISM.

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