The 2020 Mid-Year Economic Update_long

Report: Manufacturing Growth Should Continue

The manufacturing sector should be able to withstand some deceleration and continue its expansion through 2007, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook, a report that analyzes 27 major industries.

In a sign of consistent strength in manufacturing, fourth quarter 2005 figures show that 20 of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, the third consecutive quarter that 20 industries have shown improvement, indicating broad-based growth in the industrial sector.

Top industry performers in the fourth quarter, recording year-over-year double-digit growth, were mining and oil and gas field machinery (32 percent); ventilation, heating, air conditioning, and commercial refrigeration equipment (28 percent); communications equipment (26 percent); material handling equipment (23 percent); oil and gas well drilling (20 percent); electronic computers (19 percent); navigational, measuring, electromedical, and control instruments (18 percent); aerospace product and parts (15 percent); and electrical equipment (11 percent).

Daniel J. Meckstroth, Ph.D., Manufacturers Alliance/MAPI Chief Economist and author of the analysis, writes that 11 industries are in the recovery phase of the business cycle; nine are in the expansion phase; six appear to be in the accelerating decline (either early recession or mid-recession) phase; and one’iron and steel products’is in the decelerating decline (late recession or very mild recession) phase of the cycle.

“Consumer goods manufacturing grew at a moderate rate in the fourth quarter, material industries declined, but the capital equipment industries were very strong,” Meckstroth said. “High-tech manufacturing also grew rapidly in the fourth quarter.”

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

Three industries are expected to enjoy double-digit growth in both 2006 and 2007: mining and oil and gas field machinery should rise by a robust 20 percent and 12 percent, respectively, due in part to the replacement and repair of the oil and gas field machinery that was lost or damaged during the Gulf Coast hurricanes; computer equipment (12 percent/11 percent); and private non-residential construction (10 percent/10 percent).

In addition, two other industries should see double-digit growth in 2006, communications equipment (19 percent) and navigation, measuring, electromedical, and control instruments (14 percent).

Only one industry is forecast to have negative change in both 2006 and 2007, as housing is expected to decline by 8 percent in 2006 and 4 percent in 2007.

The Alliance expects some deceleration in manufacturing industrial production, with import penetration bearing some responsibility as many industries continue to compete with foreign producers. Manufacturing industrial production grew 3.9 percent in 2005 and should grow 3.6 percent in 2006 before decelerating more rapidly to 2.3 percent growth in 2007.

“We expect housing starts to decline for the next several years and housing price inflation should cool,” Meckstroth said. “Consumers will not be able to spend out of their home equity to the extent they have done so in the past; future spending has to track income, job and wage growth. We expect housing and motor vehicle production will generally decline over the next two years. Business investment in equipment will remain robust, but rate of growth will decelerate.”

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