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May marked the 36th straight month that the manufacturing sector grew in the U.S. That means that for three years running we've been in expansion mode.

So why aren't more people smiling?

While I usually leave the commentary on the markets to the (self-styled) experts, I feel attention needs to be called to some of the leading indicators for electronics manufacturing, which, if you haven't noticed, are acting a little wacky. For instance:

Item. Worldwide sales of semiconductors rose 8.1% year-over-year to $19.6 billion in April. The spike prompted the Semiconductor Industry Association (sia-online.com) to raise its 2006 forecast to 9.8% from the 7.9% the trade group predicted last November. On the SIA's regular conference call, president George Scalise forecast even sharper growth ahead: 11% in 2007 and 12% in 2008.

Item. IC inventories are in balance, and have been in line since 2002. Scalise called levels "consistent" with balanced supply and demand. Overall capacity utilization is about 90%, which is very high by historical measures.

Item. According to Henderson Ventures' (hendersonventures.com) June forecast, sales of electronics products are on track for 6.1% growth this year in the U.S. That's a solid number, although down from 2005 (6.5%) and 2004 (7.6%). China is still blowing the doors off, although its outlook has started to level off - remember this is all relative - to 24.6%, down from 29.6% in 2005 and 36.3% in 2004. Henderson predicts an 8.4% gain worldwide this year, followed by 6.7% in 2007 and 7.9% in 2008.

Item. Consumers are buying like there's no tomorrow. PC shipments are up 10 to 12% this year, to 250 million units. Cellphones are up 22%, and on pace to surpass 1 billion units shipped for the first time. Digital cameras are up 16%, to 90 million units. Televisions are up 52%, to 35 million units. MP3 players are up 52%, to 90 million units.

Item. The PMI manufacturing index was 54.4% in May, remaining above the 50% benchmark that indicates expansion in manufacturing for three years running, according to the Institute for Supply Management (ism.ws).

Item. Last month the price of silicon wafers rose in Japan for the first time in six years. Reasons: Tight silicon supplies and escalating crude oil prices. Mainstream 200 mm wafers were up five to 10%, as were some 300 mm wafers. Volume prices for polycrystalline silicon has risen some 30 to 40% year-over-year, reported Japan's Nihon Keizai Shimbun, on demand for PCs and cellphones.

Item. A June 13 Wall Street Journal story noted that insatiable demand for multimedia Internet services is leading big-name providers to "scour the nation" in search of cheap power. Microsoft's data-center power consumption has roughly doubled over the past four years, for instance, and the company predicts it could more than triple over the next five. Indeed, one large data center uses the equivalent power of a city of 30,000 to 40,000 people, the story reported.

Item. As columnist Jan Vardaman details in her column this month (page 22), prices for oil, natural gas and other energy sources have risen dramatically. And metals are through the roof: Copper is up 70% this year, gold is at a 25-year high and silver has set a record.

With demand cresting, can we expect product inflation? And if so, does that portend a slowdown? And what will be the impact of higher energy prices? Will they slow down the mighty consumer market? Or will nothing quench our thirst for ever-bigger iPods?

On the SIA teleconference, Scalise claimed that rising energy prices have had no impact on demand for consumer electronics. The numbers seem to support that. In fact, much of this year's growth in ICs owes to cellphone demand, as the typical mobile handset contains about $41 worth of semiconductors.

And - showing that there are some lessons we do learn - inventories are not out of whack. Per the ISM, inventory levels at factories and customers both dropped in May, and the latter figure is actually too low, based on historical benchmarks.

Clearly, business is very strong. So why all the long faces?

I can't be sure, but I think the industry still suffering from a hangover brought on by the downturn of 2001-03. Somehow, between the lower margins, the offshoring and especially the specter of a recession past, we haven't managed to convince ourselves that the good times are back. Well, perhaps not "the" good times, like those in 1999 to early 2001. But the data strongly point in the right direction.

Maybe that's why we're worried. The stars have aligned. And we know what can happen when they do.

My outlook, however, is that it's precisely because we know what can happen that we will take all the right measures to ensure that they don't.

And as you can see by my picture, I am smiling.

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