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Strong industrial activity in early 2013 softened somewhat recently, but the sector should have enough momentum to continue growth, according to the quarterly Manufacturers Alliance for Productivity and Innovation U.S. Industrial Outlook (EO-124), a report that analyzes 27 major industries.
Inflation-adjusted GDP increased at a 2.4 percent annual rate in the first quarter of 2013, while manufacturing output grew at a much faster 5 percent annual rate.
MAPI forecasts that industrial production will increase 3.1 percent in 2013, an increase from 2.2 percent in the March 2013 forecast. A further pickup is likely in 2014, with growth anticipated to be 3.6 percent, commensurate with the previous report. Manufacturing production should outperform GDP growth, which MAPI estimates will be 1.8 percent in 2013 and 2.8 percent in 2014.
“The superior growth in manufacturing production earlier this year was due to strong growth in housing starts, auto sales, and inventory rebuilding that disproportionately benefits manufacturing,” said MAPI chief economist Daniel J. Meckstroth, Ph.D., author of the analysis. “When there is a large inventory build in one quarter, however, the gain tends to reverse in the next period and we saw that in March and April. We expect acceleration in the general economy and a rebound in manufacturing production in the second half of this year, but nothing to suggest anything more than a return to modest to moderate growth.”
The report offers economic forecasts for 24 of the 27 industries. MAPI anticipates that 18 industries will show gains in 2013, three will remain flat, and three will decline. Housing starts should see a 26 percent increase while motor vehicles and parts production is forecast to advance by 8 percent. The outlook improves in 2014, with growth likely in 23 of 24 industries, led by housing starts at 26 percent. Public works construction is the lone industry expected to decline in 2014, by 1 percent.
According to the report, non-high-tech manufacturing production (which accounts for 95 percent of the total) is anticipated to increase 3.0 percent in 2013, an improvement from 1.8 percent in the previous forecast, and grow by 3.5 percent in 2014, a slight deceleration from 3.8 percent in the March analysis. High-tech industrial production (computers and electronic products) is projected to expand by 4.4 percent in 2013, an improvement from 4.3 percent growth anticipated in MAPI’s March report. An advance to 6.1 percent growth is forecast for 2014, a downward revision from 9 percent in the previous outlook.
Thirteen of the 27 industries MAPI monitors had inflation-adjusted new orders or production above the level of one year ago (four fewer than reported last quarter), 4 were flat, and 10 declined. Housing starts grew by 31 percent in the three months ending April 2013 compared with the same period one year earlier, followed by construction machinery at 9 percent in the same time frame. The largest drop came in electronic computer shipments, which declined by 25 percent.
Meckstroth reported that seven industries are in the accelerating growth (recovery) phase of the business cycle; 11 are in the decelerating growth (expansion) phase; six are in the accelerating decline (either early recession or mid-recession) phase; and three are in the decelerating decline (late recession or very mild recession) phase.