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MAPI: Economic Outlook Downgraded

The unsettling tumult that hit U.S. manufacturing in the first half of 2011 caused considerable concern for the sector, initiating a modest downgrade in the economic outlook, according to the Manufacturers Alliance/MAPI U.S. Industrial, a quarterly report that analyzes 27 major industries.

"A number of shocks adversely affected the economy and the manufacturing sector in the first half of 2011," said Daniel J. Meckstroth, Ph.D., chief economist for the Manufacturers Alliance/MAPI and author of the analysis. "Abnormal events included severe winter weather and spring flooding, the Japanese tsunami's effect on the supply chain, high commodity prices (particularly food and oil), and a surge in home foreclosures. Fortunately, automakers are bumping up production schedules because of low inventories, and both food and oil prices are falling.

"In addition, energy and medical related goods and equipment as well as industrial-oriented machinery production continue growing at a fast pace," he added. "Business equipment production should be a driver of manufacturing growth in the second half of this year."

The report offers economic forecasts for 24 of the 27 industries. MAPI anticipates that 18 of the 24 industries will show gains in 2011, led by engine, turbine, and power transmission equipment with 23 percent growth. One industry, pharmaceuticals and medicine, will remain flat. Improvement should continue in 2012 with growth likely in 23 of 24 industries, led by housing starts at 17 percent, albeit from depressed levels. Public works construction is the only industry expected to decline, by 5 percent, in 2012.

Manufacturing industrial production, measured on a quarter-to-quarter basis, was relatively flat in the second quarter of 2011 after expanding at a 7 percent annual rate in the first quarter. MAPI forecasts that manufacturing production will increase 4 percent in 2011 and advance by 3 percent in 2012. The forecast is down from 6 percent and 4 percent, respectively, from MAPI's May 2011 report in response to the weak consumer sector and business concerns about sales prospects. Still, it should outperform GDP growth, which MAPI estimates will be 1.6 percent in 2011 and 2.1 percent in 2012.

Production in non-high-tech manufacturing showed no change from the first to second quarter of 2011. According to the MAPI report, non-high-tech manufacturing production (which accounts for 90 percent of the total) is expected to increase 4 percent in 2011 and 3 percent in 2012. High-tech industrial production rose at a 2 percent annual rate from the first quarter to the second quarter of 2011. MAPI anticipates this sector will increase by 9 percent in 2011 and show 11 percent growth in 2012.

Eighteen of the 27 industries MAPI monitors had inflation-adjusted new orders or production above the level of one year ago (the same as reported in the previous quarter), three industries remained flat, and six declined. Engine, turbine, and power transmission equipment grew by 29 percent in the three months ending July 2011 compared to the same period one year earlier, while mining and oil and gas field machinery production improved by 28 percent in the same time frame.

The largest drop came in public construction, which declined 11 percent.

Meckstroth reported that 5 industries are in the accelerating growth (recovery) phase of the business cycle; 15 industries are in the decelerating growth (expansion) phase; 5 industries are in the accelerating decline (either early recession or mid-recession) phase; and 2 are in the decelerating decline (late recession or very mild recession) phase of the cycle.

© 2019 Gale Media, Inc.

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