Report: Manufacturing Will Rebound in 2009

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April 10, 2008

Report: Manufacturing Will Rebound in 2009

A worsening housing collapse continues to depress related industries, making for turbulent times in the U.S. manufacturing sector in 2008. Any gloom this year, however, should give way to a rebound in 2009, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook, a report that analyzes 27 major industries.

Housing starts were down 26% in the fourth quarter of 2007. They are expected to plummet another 33% in 2008, bottoming out in the second quarter as the U.S. remains “in the midst of the most severe housing downturn anyone could have imagined," according to Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI, and author of the analysis.

Conversely, the longer term outlook looks much brighter, with a 32% increase in the rate of growth in housing expected for 2009, albeit from an extremely low base.

According to MAPI's previously released quarterly economic forecast, inflation adjusted exports are expected to expand by 8.1% in 2008 and by 9.9% in 2009, partially offsetting some of the negative effects of the housing crisis.

On an annual basis, MAPI forecasts only slight growth in the industrial sector this year. Manufacturing production is expected to increase 0.5% in 2008 before rebounding to 3.4% growth in 2009.

“Any recession is bad news for manufacturing; however, the structure of the current downturn is concentrated in finance, real estate, and construction and not on manufacturing intensive demand such as business equipment and exports," Meckstroth said. “Furthermore, the reduction in consumer spending may well hurt foreign imports more than domestically produced items."

Prevailing weakness in manufacturing was evident in the 2007 fourth quarter figures. Thirteen of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, equal to the previous quarter. Eleven industries had production below the level of one year ago, and three remained flat.

Seven industries enjoyed strong, double-digit year-over-year growth in the fourth quarter, led by mining and oil and gas field machinery at 31%; communications equipment, and aerospace products and parts each grew at 15%; steel at 13%; electronic computer equipment, and electrical equipment each at 12%; and private non-residential construction enjoyed 10% growth.

The largest drop came in the consumer goods and housing industries and equipment industries. In addition to the aforementioned 26% drop in housing, construction machinery production declined by 20%, and engine, turbine, and power transmission production fell by 10%.

Meckstroth concludes that five industries are in the accelerating growth (recovery) phase of the business cycle; 11 are in the decelerating growth (expansion) phase; nine industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and two are in the decelerating decline (late recession or very mild recession) phase of the cycle.

The report also offers economic forecasts for 24 of the 27 industries for 2008 and 2009. This year should be particularly challenging for the manufacturing sector with MAPI forecasting only 10 of 24 industries to show growth, led by mining and oil and gas field machinery at 22% growth, and aerospace products and parts improving by 11%.

In 2009, though, a solid turnaround should occur with 20 of 24 industries expecting growth, and two industries remaining flat. While 2008 should see continued declines, housing starts should improve markedly in 2009, with anticipated growth of 32%. Aerospace products and parts is expected to continue its strong showing with a forecast of 11% growth in 2009.

Predictions are for only one industry to experience negative change in both 2008 and in 2009. Electric lighting equipment is forecast to decline by 4% in 2008 and by 1% in 2009

The report is available at no charge for MAPI members while others may order the publication at www.mapi.net, or calling Mary Pearson, Publications and Accounting Assistant at (703) 647-5139 or via email to mpearson@mapi.net.

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