Newton, Mass. —When the U.S. government released a spate of generally vague terrorist warnings in late spring, many economists feared for a reactionary "double dip" in both consumer confidence and industrial goods growth.

It hasn't happened. Momentum is building for an industrial recovery, but the watchwords "cautious optimism" are still in force for at least the next six months, says Paul Engle, a senior manager at Grant Thornton LLP, an accounting and management advisory firm. In a recent survey of consumer and industrial product companies with between $50 million and $1 billion revenue each, Grant Thornton found 80 percent were optimistic about the "general business outlook."

"We found the recession to be very uneven. It was not regional as it almost always is," Engle said. "In general, capital equipment and technology were devastated, but consumer goods and housing construction in most areas were not nearly as hard hit."

While Engle expects recovery throughout the year, he does not think it will spur significant inventory building until at least two more quarters have come and gone.

"A sure sign of robust life is inventory buildup, but distributors and manufacturers will certainly be very cautious after what hapened last year," he said. "MRO and other indirect material buying will stay flat, plus or minus five percent. Buyers don't totally quit buying those products [in a recession]."

Other signs were also mildly positive. Industrial orders and output were both up in May from the previous month. Unemployment remained virtually level and housing saw a small spurt after a small dip in April.

Manufacturing activity in-creased in May at the fastest pace in two years, according to a U.S. Department of Commerce report. Likewise, the Institute for Supply Management's Purchasing Managers Index for May was 55.7, the highest in a year. It marked five months of consecutive manufacturing growth.

However, there are reasons to remain cautious, said Norbert Ore, a group director at ISM.

"While the manufacturing sector is definitely improving, they now find themselves facing a recovering economy that still generates concerns ... [including] labor and benefits costs, energy costs, inflation and import restraints," Ore said. "Some sectors are experiencing a faster recovery than others."