The 2020 Mid-Year Economic Update_long

Quarterly Forecast: Exports Brighten Manufacturing Outlook

Hopes for something more than a temporary rebound in the U.S. economy anytime soon could be frustrated, but the manufacturing outlook in particular might be somewhat brighter due to continuing strength in exports, according to a new report.
 
The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted GDP growth will slow to 1.3% in 2008 before improving to 1.9% in 2009. The 2009 forecast is down from 2.5% projected in the February outlook. By supplying major assumptions for the economy and running simulations through the Global Insight Macroeconomic Model, the Alliance generates unique macroeconomic and industry forecasts.
 
The 2008 recession looks like it is going to be milder and more prolonged rather than normal,"said Daniel J. ...

Hopes for something more than a temporary rebound in the U.S. economy anytime soon could be frustrated, but the manufacturing outlook in particular might be somewhat brighter due to continuing strength in exports, according to a new report.
 
The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted GDP growth will slow to 1.3% in 2008 before improving to 1.9% in 2009. The 2009 forecast is down from 2.5% projected in the February outlook. By supplying major assumptions for the economy and running simulations through the Global Insight Macroeconomic Model, the Alliance generates unique macroeconomic and industry forecasts.
 
The 2008 recession looks like it is going to be milder and more prolonged rather than normal,”said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. “The large, but temporary, tax rebates and massive monetary policy easing will interrupt an economic downturn in the second and third quarters of this year but will unwind in late 2008 and early 2009. The outlook is for a prolonged period of subpar growth rather than a concentrated adjustment.”
 
Manufacturing production growth will show a significant deceleration from an already low 1.7% growth in 2007 to an estimated 0.4% in 2008, preceding a decent upswing to 3.1% in 2009.  Production in non-high-tech industries is anticipated to decline 1.2% this year and to grow by 1.6% in 2009.
 
There is some positive news in the computers and electronics products sector, as high-tech industrial production is expected to rise 16.9% in 2008 and 14.8% in 2009, an improvement in the high-tech outlook over the 14.3% and 10.1%, respectively, projected in the previous MAPI report.
 
The GDP account for inflation-adjusted investment in equipment and software should increase by 0.7% in 2008 and by 2.8% in 2009. The largest percentage gains in capital equipment spending will come in the high-tech sectors. Inflation-adjusted expenditures for information processing equipment are expected to rise 6.9% in 2008 and 3.3% in 2009.
 
The forecast calls for industrial equipment expenditures to decline by 4.3% this year and to further decline by 2.8% in 2009. The latter figure contrasts with a previously anticipated 1% gain in 2009 in the February forecast. The outlook for spending on transportation equipment calls for a 10.4% decline in 2008 followed by a solid recovery to 8.8% growth in 2009.
 
Spending on non-residential structures is expected to fall over the next two years. While spending in this area increased by 12.9% in 2007, it is presumed to rise by just 2.6% in 2008 and to decline by 7.4% in 2009. 
 
Exports and imports, however, are potential beacons in the soft economic environment. Export growth should outpace that of imports by a wide margin by the end of 2009. Inflation-adjusted exports should rise 8.3% in 2008 and 9.7% in 2009, while imports are expected to remain flat this year and increase by just 1.6% next year.
 
“The significant decline in the value of the dollar is important because it allows U.S. manufacturers to tap into the economic strength of the rest of the world to cushion our downturn,”Meckstroth added, “and makes it more expensive for foreign firms to be competitive from an overseas location.”
 
The forecast envisions the unemployment rate to rise to 5.2% in 2008 and to 5.6% in 2009.

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