The MAPI Foundation has projected a five-year forecast of persistently sluggish activity. The organization, the research affiliate of the Manufacturers Alliance for Productivity and Innovation, expects no more than 2 percent annual growth in U.S. GDP through and including 2020. It predicts less than 1 percent annual growth in U.S. manufacturing output for 2016 and 2017 and then growth of 1 percent or a little more through and including 2020.
Both manufacturing and the overall economy continue to be plagued by a host of factors. One is the risk aversion that has resulted in 16 years of malaise in capital equipment investment. In addition, structural impediments such as weakening labor productivity growth and the beginning of a period of population aging are constraining long-term growth potential.
Since manufacturing is the most globally connected of all U.S. sectors, its growth is particularly hurt by weakness and instabilities in the post-2009 world economic picture. In simulating the Global Insight model to produce the current forecast, MAPI assumes continued weakness in global economic performance. There is much evidence to support this assumption. While emerging market troubles, particularly in Brazil and Russia, appear to be reaching at least a temporary stasis, the stability of the trough is unclear, especially in light of the protracted slowdown in the globally influential Chinese economy.
Fears that the eurozone is a potential source of a globally destabilizing crisis have certainly abated, which is a boon to the efforts of emerging markets to stabilize. But eurozone growth remains frustratingly slow, and long-term uncertainties abound, particularly in the wake of the United Kingdom’s decision to relinquish its 43-year membership in the European Union. The tactical and logistical uncertainties in the post-Brexit years could by themselves, apart from any market or policy realities, put a cap on growth.
After a weak first half of 2016, U.S. economic growth has clearly accelerated. But it is a strangely bifurcated picture, with strength coming from the consumer and improved export demand; equipment investment, meanwhile, has suffered four consecutive quarterly contractions. Consequently, from the perspective of industrial manufacturers, U.S. GDP growth has been deceptive in that the benefits of growth are realized more outside of the manufacturing sector. Weakness in business fixed investment is now a long-term problem that has hurt manufacturing performance and contributed to a moribund productivity picture, with negative consequences for potential U.S. growth.
