Why are we not seeing a manufacturing rebound in the northeast of US?

The U.S. manufacturing sector enjoyed a relatively swift bounce-back during the recovery. However, the rising tide did not lift all boats equally, with factory activity in the Northeast showing little improvement.

This underperformance was due to the unfortunate coincidence of a large number of factors. Considerable trade exposure to underperforming European markets and reduced federal defense spending were chief among them. However, consolidation in some of the region's advanced manufacturing industries, and unfavorable industry composition also weighed on performance.

Despite the general weakness across the region, performance between states has been varied. Output has nearly recovered to its pre-recession level in Massachusetts and reached a new peak in New Hampshire. Meanwhile, the underperformance was most prevalent in Connecticut, Maine, New Jersey and New York.

The prospects for the region's manufacturing industry remain clouded. While the headwinds related to the weakness in the E.U. and defense spending cuts are easing, rapid appreciation of the U.S. dollar, high cost structure and lagging productivity growth will continue to weigh on regional manufacturing performance in the medium term.

"That being said, the region is home to many advanced manufacturing industries and has an ample pool of highly-educated labor, which could work to its advantage longer-term, provided it addresses some of its most pressing issues", says TD Economics.