The 2020 Mid-Year Economic Update_long

MAPI Quarterly U.S. Industrial Outlook: Strong Dollar Offsets Low Energy Prices

Manufacturing production forecasted to grow 3.7 percent in 2015.

The manufacturing outlook for 2015 and 2016 calls for a minor acceleration from the 2014 growth rate, according to the quarterly Manufacturers Alliance for Productivity and Innovation U.S. Industrial Outlook, a report that analyzes 27 major industries.

Manufacturing industrial production increased at a 3.8 percent annual rate in the fourth quarter of 2014 and posted 3.6 percent growth for the year as a whole –over a percentage point higher than the 2.4 percent gain in the overall economy.

The MAPI Foundation forecasts manufacturing production growth of 3.7 percent in 2015 and 3.6 percent in 2016. The 2015 forecast is an increase from 3.5 percent and the 2016 forecast is a decrease from 3.9 percent in the December 2014 report. Manufacturing will continue to grow faster than the overall economy, which the MAPI Foundation anticipates will advance by 3 percent in 2015 and 2.7 percent in 2016.

"The good news is that low energy prices lower manufacturing costs and allow consumers to buy more non-energy goods and services," said MAPI Foundation Chief Economist Daniel J. Meckstroth. "The offset is that low prices will depress the energy infrastructure buildup and the strong dollar will raise the trade deficit in manufacturing. The shifting forces offset and leave overall manufacturing production growing close to the same pace as last year – though thankfully, still faster than the pace of growth in the overall economy."

With an improving employment outlook – meaning more workers with incomes – Meckstroth predicts solid consumer spending and purchases of big-ticket items such as motor vehicles, houses, and appliances. Business investment should ramp up as well; Meckstroth noted that firms have cash and are profitable, utilization rates are high, and credit is available.

The report offers economic forecasts for 23 of the 27 industries. The MAPI Foundation anticipates that 21 will show gains in 2015, and only one – mining and oil and gas field machinery – will decline. The top industry performer will be housing starts with anticipated annual growth of 16 percent.

The outlook remains bright in 2016, with growth likely in 22 industries, led by housing starts at 14 percent. Mining and oil and gas field machinery is expected to plummet by 19 percent, as lower oil prices will discourage most shale drilling which will affect oil field investment.

According to the report, non-high-tech manufacturing production (which accounts for 95 percent of the total) is anticipated to increase 3.4 percent in 2015 and 3.1 percent in 2016. High-tech industrial production (computers and electronic products) is projected to expand by 6.1 percent in 2015 and 9.1 percent in 2016.

During the report period (November 2014 through January 2015), 23 of the 27 industries Meckstroth monitors had inflation-adjusted new orders or production at or above the level of one year prior, while three declined and one was flat, consistent with the previous report.

Meckstroth reported that 13 industries are in the accelerating growth (recovery) phase of the business cycle, 10 are in the decelerating growth (expansion) phase, three are in the accelerating decline (either early recession or mid-recession) phase, and one is in the decelerating decline (late recession or very mild recession) phase.

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