The 2020 Mid-Year Economic Update_long

Industrial Outlook: Modest Acceleration in ’06, Slowing in ’07

Moderate acceleration in the manufacturing sector in 2006 will likely be followed by pronounced slowing in 2007, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook-Second Quarter 2006, a report that analyzes 27 major industries.


In a sign of consistent strength in manufacturing, second quarter 2006 figures show that 19 of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, thus indicating broad-based growth in the industrial sector.


Top industry performers in the second quarter, recording year-over-year double-digit growth, were mining and oil and gas field machinery (44 percent); communications equipment (34 percent); construction machinery (20 percent); oil and gas well drilling (19 percent); iron and steel products (19 percent); aerospace products and parts (16 percent); electrical equipment (16 percent); navigational, measuring, electromedical, and control instruments (15 percent); material handling equipment (15 percent); and semiconductors (11 percent).


Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist and author of the analysis, writes that nine industries are in the accelerating growth (recovery) phase of the business cycle; 11 are in the decelerating growth (expansion) phase; four industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and three are in the decelerating decline (late recession or very mild recession) phase of the cycle.


‘Manufacturing has been growing much faster than the general economy since the fourth quarter of 2005,’ Meckstroth said. ‘The strength of the expansion in the goods sector created concerns about supply availability within the manufacturing industry which encouraged inventory rebuilding, adding to the momentum. The industrial rebound in Europe and Japan has improved export demand.’


The report also offers economic forecasts for 24 of the 27 industries for 2006 and 2007.


Seven industries are expected to enjoy double-digit growth in 2006, but only one is expected to hit that benchmark in 2007. Mining and oil and gas field machinery is the lone industry expected to enjoy double-digit growth in successive years, 10 percent in 2006 and 17 percent in 2007. In 2006, communications equipment should rise by a robust 27 percent; aircraft and parts is likely to experience 17 percent growth; navigational, measuring, electromedical, and control instruments is expected to gain by 15 percent; construction machinery production should improve by 14 percent; steel production should rise by 13 percent; and electrical equipment is forecast to improve by 12 percent.


One industry is forecast to have negative change in both 2006 and 2007. Housing starts are expected to decline by 8 percent in 2006 and 9 percent in 2007. Manufacturing industrial production grew 3.9 percent in 2005. MAPI forecasts it will grow 5 percent in 2006 before decelerating to 2.5 percent growth in 2007.


‘The big-ticket consumer items have already started to falter. Housing starts and motor vehicle sales will decline this year,’ Meckstroth explained. ‘Although the production of capital equipment will continue to lead industrial activity, the equipment that uses diesel engines is expected to experience a strong 2006 followed by a decline in production activity next year. New emission control regulations have created an incentive to buy now because the new engines will be more costly.’

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