In this article, Editor Jenel Stelton-Holtmeier writes: The U.S. economy is well positioned for growth, as many of the economic indicators have recovered what was lost during the recession and more people are re-entering the labor force with better prospects for employment than just a few months ago.
Confidence is high, on both the consumer and business sides, but there’s still strong aversion to risk after this last recession, according to Dan Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation, in MAPI’s quarterly U.S. Economic and Manufacturing Outlook webinar.
“Consumer spending is consistently growing,” Meckstroth says, which is a good sign for the overall economy, as consumer spending is 70 percent of final demand in the U.S. But they’re being cautious about spending because they don’t want to return to the debt-based growth model seen prior to the Great Recession.
Business investment is also consistently growing, according to Meckstroth, both in structures and equipment. But, he says, there’s a case to be made for increasing investment. “Conditions are ripe for a capital spending boom,” he says, ”but we haven’t gotten a capital spending boom” because companies are also more risk-averse than they were in the past.
Capacity utilization in most industries is near or has exceeded the levels of December 2007. For motor vehicles and parts, current capacity utilization is at 89 percent, compared to 78 percent in December 2007. This is primarily a result of plants being shut down during the auto industry crisis, Meckstroth says, but there is already a need to expand manufacturing capacity in this area.
The one area that continues to lag is residential construction and housing activity. “Multifamily starts have basically recovered, but single family starts have lagged substantially,” Meckstroth says. MAPI is forecasting 1 million starts – including both multi- and single family starts – for 2014, well below the peak of 2.2 million and below the “normal” level of 1.5 million to 1.7 million starts.
But that too will likely change in the next two years, with MAPI forecasting 1.3 million starts in 2015 and 1.5 million starts in 2016.
There are already positive signs from other indicators. Builder confidence in the market for newly built, single-family homes rose two points to 55 on the National Association of Home Builders/Wells Fargo Housing Market Index for August, the third consecutive monthly gain and the index’s highest level since January.
“As the employment picture brightens, builders are seeing a noticeable increase in the number of serious buyers entering the market,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, DE. “However, builders still face a number of challenges, including tight credit conditions for borrowers and shortages of finished lots and labor.”
Privately-owned housing starts in July were at a seasonally adjusted annual rate of 1,093,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. This is 15.7 percent above the revised June estimate of 945,000 and 21.7 percent above the July 2013 rate of 898,000. Single-family housing starts in July were at a rate of 656,000; this is 8.3 percent above the revised June figure of 606,000.
The 2014 Third Quarter Nonresidential Construction Index, released by FMI, declined 3.3 percentage points from the second quarter, but is still above the same period in 2012. Cost of materials and labor had a negative impact on the index. Delays in government spending, particularly for highway projects, also has a negative impact on the overall index.
However, FMI says that the economy “has passed the ‘survival’ state and currently occupies the ‘thriving’ phase.”
Real GDP in the U.S. grew 4 percent in the second quarter, according to the advance estimate released by the Bureau of Economic Analysis. The increase primarily reflected positive contributions from personal consumption expenditures, private inventory investment, exports, nonresidential fixed investment, state and local government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.