The 2020 Mid-Year Economic Update_long

MAPI Quarterly U.S. Industrial Outlook: Growth Decelerates in 2015

Manufacturing production forecasted to grow 2.5 percent in 2015.

Several factors have emerged to temper the manufacturing production forecast for 2015 but a rebound is anticipated for 2016, according to the quarterly Manufacturers Alliance for Productivity and Innovation U.S. Industrial Outlook, a report that analyzes 27 major industries.

Manufacturing industrial production fell at a 1 percent annual rate in the first quarter of 2015 – after 3.5 percent growth in 2014 – primarily due to the severe winter weather in January and February that disrupted construction, transportation, trade and commercial activity.

The MAPI Foundation forecasts manufacturing production growth of 2.5 percent in 2015 and 4 percent in 2016. The 2015 forecast is a decrease from 3.7 percent and the 2016 forecast is an increase from 3.6 percent in the March 2015 report. Manufacturing will continue to grow faster than the overall economy, which the MAPI Foundation anticipates will advance by 2.4 percent in 2015 and 3 percent in 2016. For 2017, growth is predicted to be 3.1 percent for manufacturing production and 2.7 percent for GDP.

"A number of factors that drove growth last year have changed in 2015," said MAPI Foundation Chief Economist Daniel J. Meckstroth. "A sudden, rapid decline in oil and natural gas prices was good for energy users but caused problems in energy drilling, exploration, and the material supply chain; a sudden, rapid rise in the value of the dollar hurt our trade competitiveness; a large inventory buildup this past winter drove the inventory/sales ratio to unwanted highs; and finally, consumers are cautious and risk-averse."

"Many of these shocks that are slowing growth this year will be absorbed and will not hold down growth in 2016," Meckstroth added. "Presuming we have a return to a 'normal winter' this year, manufacturing should get a boost."

The report offers economic forecasts for 23 of the 27 industries. The MAPI Foundation anticipates that 19 will show gains in 2015, three will decline and one – alumina and aluminum production – will remain flat. The top industry performers will be engine, turbine, and power transmission equipment and industrial machinery, each with anticipated annual growth of 11 percent.

The outlook is improved in 2016, with growth likely in 22 industries, led by housing starts at 19 percent. Mining and oil and gas field machinery is expected to plummet by 18 percent, as manageable oil prices will continue to discourage most shale drilling and, commensurately, drilling investment.

According to the report, non-high-tech manufacturing production (which accounts for 95 percent of the total) is anticipated to increase 2.4 percent in 2015, 3.2 percent in 2016, and 2.9 percent in 2017. High-tech industrial production (computers and electronic products) is projected to expand by 4.7 percent in 2015, 9.1 percent in 2016 and 8.3 percent in 2017.

During the report period (February through April 2015), 20 of the 27 industries had inflation-adjusted new orders or production at or above the level of one year prior, while 7 declined. The 20 industries were three fewer than in the previous report.

Meckstroth reported that 8 industries are in the accelerating growth (recovery) phase of the business cycle, 14 are in the decelerating growth (expansion) phase, 2 are in the accelerating decline (either early recession or mid-recession) phase and 3 are in the decelerating decline (late recession or very mild recession) phase.

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