MAPI forecasts moderate growth in manufacturing production for 2013-2015
Every three months, the Manufacturers Alliance for Productivity and Innovation (MAPI) provides a detailed look at the health of the domestic manufacturing sector and reviews the performance of a selected group of its most important subsectors.
Manufacturing industrial production declined at a 0.8 annual rate in the second quarter of 2013 and fell at a 1 percent annual rate in July. The decline in manufacturing activity was a correction for the exceptionally strong pace of production in the first quarter (5.2 percent annual rate) and not a precursor of a general slump.
Manufacturing simply got ahead of the sluggish performance of the overall economy and went through an adjustment period to realign orders and production. Reports from the Institute for Supply Management’s Purchasing Managers Index in July and August suggest that production has already staged a strong rebound.
Acceleration in manufacturing production during the second half of this year is expected, but nothing in the outlook suggests more than a return to moderate growth. The outlook for 2014 and 2015 calls for close to a percentage point improvement in the growth rate each year.
Consumer spending growth has remained remarkably stable because of surprisingly robust employment growth in a sluggish economy. The payroll tax increase is in the rearview mirror, and spending will accelerate in 2014. Households have low debt burdens and their wealth position is rising.
Businesses are well positioned for making new investments in structures and equipment. Firms have low debt, are profitable, and have relatively high utilization rates.
What is needed is more confidence about the future. With the Eurozone coming out of recession, export activity should pick up and provide a boost to business sentiment. Government austerity, particularly at the federal level, is a necessary drag on economic growth.
MAPI forecasts that manufacturing production will increase 2.2 percent in 2013, 3.2 percent in 2014, and 4.1 percent in 2015. High-tech production is forecast to increase 5.2 percent in 2013, 7.6 percent in 2014, and 8.9 percent in 2015. Non-high-tech or traditional manufacturing, which accounts for the vast bulk of value-added in the sector, will grow 2.1 percent in 2013, 3.1 percent in 2014, and 4.0 percent in 2015.
The forecast assumes there will not be a federal government shutdown and/or a debt ceiling crisis this month. And there is not another round of large, across-the-board discretionary federal spending cuts ahead for 2014.
Among the highlights of this report:
–Housing starts will post large percentage gains this year, next year, and in 2015. Rising mortgage rates will not derail the recovery. Housing prices are rising and new and existing home inventories are tight. The housing rebound particularly helps wood products, nonmetallic mineral products, HVAC, household appliances, furniture, and construction machinery.
–There is pent-up demand for big-ticket purchases of homes and motor vehicles. While both industries will grow through 2015, there is more upside potential in housing starts. The recovery in light vehicle sales is at a more advanced stage.
–A recovery in Europe and a faster pace of domestic growth should restore business confidence in investment. Machinery and equipment spending will accelerate in the second half of this year because of the bonus depreciation expiring at year-end. Thereafter, a moderately strong pace of investment is predicted.
–Oil prices should trend downward but stay high enough to encourage more drilling. Natural gas prices will remain relatively low and slowly drift upward. Mining and drilling equipment production should be weak in 2013 and post modest gains in 2014.
–The growth rate in high-tech industries—semiconductors, electronic computer equipment, communications equipment—should accelerate in 2014 and 2015.
–Medical equipment production will post strong growth thanks to demographic trends and the Affordable Care Act. Pharmaceutical production will decline this year before showing some growth in 2014 and 2015. The loss of patent protection on blockbuster drugs is the major impediment to growth.
–A battery problem in the Boeing 787 grounded the fleet until recently. Ramping production back up takes time and will result in no production growth in 2013. The civilian aircraft backlog is large and aircraft production will show strong growth over the next several years. Defense cuts will be a headwind.
–Private nonresidential construction is declining, suffering from slow overall economic growth this year and pullback from natural disaster replacement and repair last year. Nonresidential construction activity should accelerate in 2014 and 2015.
–Public construction activity, driven by austerity, should decline in 2013 and 2014. Small growth is possible in 2015.
This report covers the actual data available through July 2013 and provides forecasts, which were completed in late August 2013. Click here for the full report.
