The U.S. manufacturing sector will face turbulent times next year due in large part to the continuing housing collapse.&nbsp ; As a result, the economic landscape will remain highly volatile in 2008 before rebounding in 2009, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook, a report that analyzes 27 major industries.
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Housing starts were down 24 percent in the third quarter of 2007.&nbsp ; They are expected to fall another 28 percent in 2008, according to Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI, and author of the analysis.&nbsp ; The good news is that the trend is likely to reverse itself in 2009, when housing starts are expected to see 34 percent growth to 1.3 million units.
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On an annual basis, MAPI forecasts a mild manufacturing recession next year. Manufacturing production is expected to increase 1.9 percent in 2007.&nbsp ; The Alliance predicts no growth in 2008 & mdash; including a slight decline in non-high tech industries & mdash; before rebounding to 2.6 percent growth in 2009.
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Five economic shocks are contributing to halt industrial growth,” Meckstroth said, “including a significantly worse housing start outlook; the negative impacts of falling housing prices on consumer spending; the credit crunch; high gasoline and record high fuel oil prices, and if we have an exceptionally cold winter, natural gas prices could also spike; and, finally, the economy is generating less job growth.”
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Prevailing weakness in the industrial sector was evident in 2007 third-quarter figures.&nbsp ; Thirteen of the 27 industries tracked in the MAPI report had inflation-adjusted new orders or production above the level of one year ago, down from 14 in the previous quarter. Twelve industries had production below the level of one year ago, and two remained flat.
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Four industries enjoyed strong, double-digit year-over-year growth in the third quarter, including communications equipment at 15 percent; electrical equipment at 12 percent; aerospace products and parts by 11 percent; and private non-residential construction with 10 percent growth.
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The largest drop came in equipment industries, where six of the seven subsectors declined year-over-year in the third quarter.&nbsp ; Ventilation, heating, air conditioning, and commercial refrigeration had the largest drop, with 12 percent.
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The report also offers economic forecasts for 24 of the 27 industries for 2008 and 2009.&nbsp ; Next year should be particularly difficult for the manufacturing sector with MAPI forecasting only 10 of 24 industries to show growth, led by mining and oil and gas field machinery at 14 percent growth, and aerospace products and parts improving by 12 percent.&nbsp ;
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Three industries are forecast to have negative change in both 2008 and in 2009.&nbsp ; Electric lighting equipment is forecast to decline by 5 percent in 2008 and by 7 percent in 2009; electrical equipment will show negative growth by 7 percent and 3 percent, respectively; and industrial machinery will decline by 5 percent in 2008 and by 1 percent in 2009.
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“The decline in the value of the U.S. dollar will act as a stabilizer to manufacturing,” Meckstroth said. “U.S. exports will increase at a rapid pace while import growth decelerates.&nbsp ; The trade situation will cushion the industrial decline next year and boost growth in 2009.
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To order a copy of the report, go to www.mapi.net.”