The weakness in the U.S. economy shows no signs of immediate abatement, and significant challenges may last well into 2009, according to a new report.


The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted gross domestic product (GDP) growth will slow to 1.6% in 2008 and decelerate to 1.3% in 2009. The 2009 GDP forecast is down from 1.9% growth projected in MAPI's May report.

The Internal Revenue Service accelerated the payment of tax rebates this year under the economic stimulus plan, getting cash in consumers'hands earlier than expected,"said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist. "The cash windfall is only temporary, and we expect a corresponding decline in spending in fourth quarter 2008 and into early 2009."

Manufacturing production growth, unfortunately, is expected to sink into negative territory in 2008, declining 0.5% following an already low 1.7% growth in 2007. It is forecast, though, to return to positive range, albeit a weak 1.6%, in 2009. The previous quarterly MAPI report had forecast production to grow by 0.4% in 2008 and by 3.1% next year. 

Production in non-high-tech industries is anticipated to decline 1.8% this year and to grow by 0.2% in 2009. There is, however, positive news in the computers and electronics products sector. High-tech industrial production is expected to rise 15.7% in 2008 and 14.7% in 2009.

The GDP account for inflation-adjusted investment in equipment and software should increase by 0.8% in 2008 and by 2.3% in 2009. The largest percentage gains in capital equipment spending will come in the aforementioned high-tech sectors. Inflation-adjusted expenditures for information processing equipment are expected to rise 8.1% in 2008 and 5.7% in 2009, up from 6.9% and 3.3%, respectively, in the May report.

In addition, the forecast calls for industrial equipment expenditures to decline by 0.4% this year and to further decline by 7.1% in 2009. The latter figure compares with a previously anticipated 2.8% loss in 2009 in the May report.  The outlook for spending on transportation equipment calls for an 18.2% decline in 2008 followed by a recovery to 7.6% growth in 2009.

Spending on non-residential structures is expected to retrench over the next two years. While spending in this area increased by 12.9% in 2007, it is forecast to decelerate to 9.9% growth in 2008 and then decline by 7.9% in 2009. 

Exports and imports, however, will likely continue to buttress the soft economic environment. Export growth should continue to outpace that of imports by a wide margin. Inflation-adjusted exports should rise 8.4% in 2008 and 7.3% in 2009, while imports are expected to decline by 1.4% this year and to increase by only 0.4% next year.

"Consumers are reducing discretionary purchases; these items tend to be imported,"Meckstroth added. "At the same time, a weak dollar has improved the competitive position of U.S. exports of goods and services in the world marketplace. A declining dollar is beneficial and has made a major contribution in keeping the economy growing amid severe economic shocks."


The forecast envisions the unemployment rate to average 5.4% in 2008 and 6% in 2009.