The manufacturing sector enjoyed a resurgence in the third quarter of 2009—increasing production at an 8 percent annual rate—but the general economic and industrial recovery will be hard-pressed to maintain that pace of growth, according to the Manufacturers Alliance/MAPI U.S. Industrial Outlook: No V-Shaped Recovery (ER-690), a quarterly report that analyzes 27 major industries.
By supplying major assumptions for the economy and running simulations through the IHS Global Insight Macroeconomic Model, the Alliance generates unique macroeconomic and industry forecasts.
“Certainly the huge fiscal and monetary stimulus is compensating for the deleveraging of the American consumer and has helped some of the most depressed industries in the economy, like autos and housing, but the most important reason may be that the worst of the inventory destocking is ending,” said Daniel J. Meckstroth, Ph.D., Chief Economist for the Manufacturers Alliance/MAPI and author of the analysis. “There are, however, cautionary flags that may dampen the recovery. For instance, job losses will continue through mid-2010; there is relatively little, if any, wage growth; credit is difficult to obtain without stellar credit scores; housing prices may fall further; and consumers are repaying debt and building a cash cushion.”
On an annual basis, MAPI forecasts manufacturing production to fall 11 percent in 2009, before recovering to 5 percent growth in 2010 and to 6 percent growth in 2011.
Manufacturing industrial production, measured on a quarter-to-quarter basis, rebounded to the aforementioned 8 percent annual rate in the third quarter of 2009 after falling at a 9 percent annual rate in the second quarter.
Production in non-high-tech manufacturing mirrored overall production, dropping by an 8 percent annual rate in the third quarter of 2009. According to MAPI’s quarterly economic forecast, non-high-tech manufacturing production is expected to decline 11 percent this year before increasing 2 percent in 2010 and 6 percent in 2011. High-tech industrial production rose at a 5 percent annual rate in the third quarter of 2009. MAPI predicts it will decline 9 percent in 2009 before posting impressive 16 percent growth in 2010 and 18 percent growth in 2011.
There was a slight upward trend in the 2009 third quarter figures for the various components of the manufacturing economy. Five of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, four more than reported in the second quarter of 2009. Leaders were medical equipment and supplies, aerospace products and parts, and public construction, which each grew by 3 percent.
The largest drop came in drilling activity which declined 51 percent, while housing starts fell by 41 percent.
Meckstroth finds that five industries are in the accelerating growth (recovery) phase of the business cycle: communications equipment, aerospace products and parts, public works construction, basic chemicals, and pharmaceuticals and medicines; one industry, medical equipment and supplies, is in the decelerating growth (expansion) phase; 10 industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and 11 are in the decelerating decline (late recession or very mild recession) phase of the cycle.
The report also offers economic forecasts for 24 of the 27 industries. The manufacturing sector should begin to rebound in 2010, with MAPI forecasting 18 of 24 industries to show gains, led by housing starts with a 56 percent rebound from historically low levels, and two will remain flat. The turnaround should continue in 2011 with growth likely in 23 of 24 industries, including seven by double digits, led by housing starts at 44 percent and engines, turbines and power transmission equipment at 24 percent.
For additional information: Manufacturers Alliance/MAPI
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