MAPI Report: No 'Quick Fixes' To Economic Woes

U.S. manufacturing production continued to plummet in the first quarter of 2009 and global contagion continues, but a confluence of factors portend a modest rebound in 2010, according to the Manufacturers Alliance/MAPI U.S. Industrial Outlook: The Great Recession, a quarterly report that analyzes 27 major industries.
 
On an annual basis, MAPI forecasts manufacturing production to fall 12% in 2009 and grow 2% in 2010.  Manufacturing industrial production, measured on a quarter-to-quarter basis, declined at a 22% annual rate in first quarter 2009 after falling at an 18% annual rate in fourth quarter 2008.
 
Production in non-high-tech manufacturing dropped by a precipitous 22% annual rate in the first quarter of 2009.  Non-high-tech manufacturing production is expected to mirror the overall production numbers, declining 12% this year before increasing 2% in 2010.  High-tech industrial production also fell at a 22% annual rate in the first quarter of 2009.  MAPI predicts it will decline 11% in 2009 and post 9% growth in 2010.
 
"Unfortunately, there are no quick fixes," said Daniel J. Meckstroth, Ph.D., chief economist for the Manufacturers Alliance/MAPI and author of the analysis. "The deleveraging of the American consumer is ongoing and will continue for years.  With heavy job loss, relatively low wage growth, tightened credit, falling housing prices, and declining stock wealth, consumers are cutting spending for big-ticket and discretionary items in order to build up depleted saving reserves.  Business spending for capital goods is also in full retreat.
 
"Fortunately, we foresee an eventual end to the current recession in late 2009," he added.  "Government stimulus, growing pent-up demand, lower commodity prices, particularly oil prices, lower mortgage rates, an end to the inventory runoff, and declining imports will all contribute to a modest rebound in industrial production activity."
 
 Only two of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, five fewer than reported in fourth quarter 2008.  One industry was flat, and 24 industries had production below the level of one year ago.  
 
The largest drop came in steel production, which declined 61%.  Material handling equipment fell by 56%, housing starts retrenched by 50%, motor vehicles and parts dropped by 41%, and semiconductors declined by 40%. 
 
Meckstroth finds that no industries are in the accelerating growth (recovery) phase of the business cycle; two are in the decelerating growth (expansion) phase; 24 industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and one - aerospace products and parts - is in the decelerating decline (late recession or very mild recession) phase of the cycle.