The 2020 Mid-Year Economic Update_long

U.S. Industrial Outlook: Solid Manufacturing Growth Through 2015

Production growth driven primarily by business investment.

A number of key factors indicate that manufacturing has potential for solid growth through 2015, 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 4.7 percent annual rate during the fourth quarter of 2013 before flattening out in the first quarter of 2014. Inflation-adjusted GDP decelerated to a 2.6 percent annual rate in the fourth quarter and will likely be less than 2 percent in the first quarter of 2014. Both declines, however, are anticipated to be short-lived.

Manufacturing production increased 2.3 percent in 2013. MAPI forecasts growth of 3.2 percent in 2014, an advance from the 3.1 percent forecast in the December 2013 report. The momentum is likely to continue in 2015, with growth forecast to be 4 percent, down only slightly from 4.1 percent from the previous report.

“Business investment–driven manufacturing is responsible for nearly all of the acceleration in production growth,” said Daniel J. Meckstroth, Ph.D., MAPI chief economist. “Firms have lots of cash, are profitable, and have relatively high utilization rates. Importantly, the two-year federal budget and debt ceiling agreement substantially reduce uncertainty. Now that the eurozone has come out of recession and emerging markets seem more resilient, export activity should pick up and provide a boost to business sentiment.”

The report offers economic forecasts for 23 of the 27 industries. MAPI anticipates that 20 industries will show gains in 2014 and three will remain flat. Growth leaders include housing starts with a 22 percent increase, industrial machinery at 9 percent and electric lighting equipment at 8 percent.

In 2015, growth is expected in all 23 industries, led by housing starts at 30 percent and both electric lighting equipment and aerospace products and parts at 11 percent.

According to the report, non-high-tech manufacturing production (which accounts for 95 percent of the total) is anticipated to increase 2.9 percent in 2014 and 3.8 percent in 2015. High-tech industrial production (computers and electronic products) is projected to expand by 6.8 percent in 2014 and 7.2 percent in 2015.

From November 2013 through January 2014, 14 of the 27 industries MAPI monitors had inflation-adjusted new orders or production at or above the level of one year prior (four fewer than reported last quarter), while 10 declined and three were flat.

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

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