Prices for raw materials have skyrocketed but manufacturers are still charging forward.

The manufacturing sector has a number of things going for it. The auto and machinery industries are doing quite nicely. Firms are cash rich right now and beginning to hire again. Also, a tax break that comes into affect this year makes it more attractive for firms to spend on software. Prices have risen but firms have been confident enough to pass on costs, which shows confidence.

Worries over inflation loom, however. High demand abroad for industrial metals has continued to push prices upward. There also remains the issue of the economy’s capacity. There may not be enough demand in the market to justify adding facilities.

February auto sales far exceeded expectations. General Motors Co. showed a 46 percent increase in sales, with increases across car, truck, and SUV segments.

Machinery companies are especially strong. John Deere & Co. reported profits of $513.7 million, or $1.20 per share, for the first quarter ended January 31, compared with $243.2 million, or $0.57 per share, during the same period in 2010. Demand for farm equipment in the United States and Canada was the driving force. Caterpillar Inc.’s CEO Doug Oberhelman predicted plentiful years as ahead due demand for construction and mining equipment around the world. Annual Income recovered to nearly 4 billion in 2010.

The March Business Survey of manufacturers conducted by the Philadelphia Federal Reserve Bank, considered a leading indicator, showed positive signs. Across the board the numbers reflected improvement or little change from the previous month.

Over sixty percent of the firms reported an increase in prices paid from March to February.

Fifty five percent of firms reported new order growth, up from 42 percent in February. The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased to 43.4, the highest measure since 1984, up from 35.9 in February. Seventy five percent of firms anticipated an increase in production in the second quarter of this year. Twenty five percent of the firms reported increases in hiring.

A new tax law that encourages self-investment has also gone into effect. Thanks to the new Section 179 Deduction, businesses can now spend up to $2 million on corporate software, the upward limit on deductions being $500,000. If firms take the bait, then business investment in equipment and software is likely to continue to rebound from the trough in the second quarter of 2009. Fixed investment increased 3.8 from 2009 to 2010, compared to an 18.3 percent decrease between 2008 and 2009, according to the Bureau of Economic Analysis.

Businesses may not need to spend however, according to Russel Price of Ameriprise International.

“There’s not really a need for additional facilities right now.” Price said. “Certainly there’s still a decent amount of capacity within the United States’ economy.”

And worries over inflation continue to dog.

When pressed about inflation worries, Mike Trebling of the Philadelphia Fed stressed that the survey corresponded only to Philadelphia manufacturers and that prices could decrease just as easily.

“We have seen these index levels as high as they are now back just a few years ago when energy prices were being passed on.” Trebling said. “They can come down as fast they’ve gone up. It’s just one sector of manufacturing firms with regard to their pricing.”

Companies facing raising raw material prices may not see it that way.

Jerry Heid oversees domestic sales for Zero Internaional Inc., a Bronx-based gasketing company involved primarily with safety pertaining to doors in commercial construction.

“Expectations are guarded.” Heid said. “I did see some increased activity in certain activities in the country.”

Inflation is here, according to Heid, and businesses need to learn how to live with it.

“There are inflationary pressures. There’s no doubt about that. So that is a concern about that, but it’s probably nothing that we’re going to be able to control.” Heid said. “We’re going to have to work around it and figure out how to deal with it.”