Report: Manufacturing Production to Slow to 2.1% Growth

Both the overall U.S. Gross Domestic Product (GDP) and the manufacturing sector will decelerate in 2007 before regaining a measure of strength in 2008, according to a new report.
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The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted GDP growth, 3.3 percent in 2006, will slow to 2.3 percent in 2007 before rebounding to 3.0 percent in 2008. By supplying major assumptions for the economy and running simulations through the Global Insight Macroeconomic Model, the Alliance generates unique macroeconomic and industry forecasts.
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The deceleration in economic growth is primarily a consequence of the continued housing slump, soft business investment, a surprise downshift in exports, and inventory adjustment," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. "There are already signs of a rebound in business activity. The American consumer is resilient, the inventory correction has run its course, and fundamentals remain strong for export growth. We expect growth to pick up the pace in the second half of 2007.
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Manufacturing production growth will experience a more pronounced deceleration this year, trending downward from 4.7 percent growth in 2006 to 2.1 percent growth in 2007. Concurrent with the overall GDP, however, the MAPI forecast envisions industrial production to rebound fairly significantly, increasing 3.3 percent, in 2008.   ; Inflation-adjusted spending for computers and electronic products is forecast to rise a solid 13.6 percent in 2007 and 13.0 percent in 2008.   ; Production in non-high-tech industries will grow by a far more modest 0.8 percent this year and 2.3 percent in 2008.
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Large percentage gains in spending, at least relative to the overall economy, will come in the high-tech sectors. Inflation-adjusted expenditures for information processing equipment are expected to rise 7.1 percent in 2007 and 6.9 percent in 2008, continuing to grow several times faster than the general economy. Nevertheless, inflation-adjusted investment in equipment and software should decelerate to 2.0 percent growth in 2007 before posting 5.0 percent growth in 2008.  ;
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Spending on non-residential structures also is forecast to increase both years, with a 7.0 percent rise in 2007, preceding an additional 2.5 percent growth in 2008. The outlook is mixed, though, for two others areas. The forecast calls for industrial equipment expenditures to increase 1.1 percent in 2007 before declining by 2.3 percent in 2008. Conversely, MAPI expects a reverse pattern of fluctuation in spending on transportation equipment, with that component seeing a 6.7 percent decline this year before experiencing 8.2 percent growth in 2008.
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Export growth should outpace that of imports by fairly wide margins through the remainder of this year and next. Inflation-adjusted exports should rise 6.4 percent in 2007 and 9.4 percent in 2008, while imports are expected to increase 2.5 percent in 2007 and 5.3 percent next year.
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The forecast for the unemployment rate remains low, at 4.6 percent in 2007 and 4.7 percent in 2008.