Aside from the financial sector, the manufacturing base was one of the hardest hit by the Great Recession. The industrial sector shed more than 2 million jobs over the past two years, closed many factories and had to deal with one of the worst order drop-offs since the Depression. Although there are still many mixed signals from the slew of economic data, the general movement of the economy is towards continual improvement. The business cycle is still in its early stages. As the "bed-rock of America," capital goods and industrial manufacturers will continue to see gains as the economy improves.

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Building the Recovery
Today manufacturing represents about 12% of America's gross domestic product, which is still significant considering retail accounts for about 70% of GDP. Overall, industrial production has continued to climb upwards, albeit slightly. Manufacturing production rose 0.5% in October, after rising just 0.1% in September. Steel production, fabricated metal products, heavy machinery and chemicals helped boost the index. The capacity utilization rate for total industry hit 74.8% in October. This is nearly 6.6 points above the low hit in June 2009 and 5.8 points below its historical average. Overall, total industrial production in October was 5.3% above its year-earlier level.

With the worst of the economic recession behind us, the industrial sector is starting to show real promise. Analysts believe that the sector is a great place to be over the next year. Estimations show that profits from industrial firms will rise nearly 35% over the next year, dwarfing the 3% improvement at the end of 2002 tech meltdown. With the utilization rate still below its average, there is room for continued growth. The sector has approximately 110 factories that are either in the planning or construction stages and are scheduled to begin operations in 2011. These plants will add more than 24,800 jobs to the U.S. economy.

Betting on the Sector with Dividends
While there are still real risks to a sustainable economic recovery, the spate of recent good news is promising. The industrial manufacturers and capital goods companies will lead the way in an economic recovery. Even though industrials are up quite nicely over the past year, adding exposure to the sector via the Vanguard Industrials ETF (NYSE:VIS) might still produce good gains throughout the year. However, with uncertainty still in the air, adding some industrial exposure via dividends might be in order. The VIS only yields 1.1% and the Industrial Select Sector SPDR (NYSE:XLI) only 2.1%. There are other options for portfolios.

As the emerging world continues to grow its infrastructure, more welding equipment is needed. Lincoln Electric (NASDAQ:LECO) is one the largest manufacturers of arc welding and plasma cutting equipment and stands to benefit from the growth both here and abroad. The company is also sharing the fruits of that growth with investors. The company recently upped its annual dividend payment by almost 11% to $1.24.

Providing fluid handling solutions to the manufacturing and construction sectors worldwide, pump maker Graco (NYSE:GGG) is also seeing results from increased industrial production. The company currently yields 2.1%.

Small engine maker, Briggs & Stratton (NYSE:BGG) was hit hard as the housing bust stifled demand for lawnmowers, leaf blowers and pressure washers. However, the company has set its sights on China. Briggs & Stratton has reworked engines that it produces in its Chongqing factory, so they could be used in rice harvesters and planters. Shares of the company yield 2.2%.

The vastness of Illinois Tool Works' (NYSE:ITW) product catalog has helped it weather the recession better than most firms. The company makes everything from those plastic six-pack rings to welding equipment to decorative counter tops. In addition, ITW receives more than 58% of its $16 billion in revenue from nations overseas. The company yields 3%.

Bottom Line
With the economy beginning to move in the right direction, the industrial complex will be a major beneficiary of that growth. Adding the sector through an ETF like the iShares Dow Jones US Industrial (NYSE:IYJ) is one way to participate in the recovery. Finding quality dividend payers in the sector is another way. The previous stocks are good examples of these companies.

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