Slowdown Looms on the Horizon

Sept. 5, 2012
The healthy growth in manufacturing at the start of the year has subsided into a troublesome deceleration, according to MAPI.

Deceleration in the U.S. manufacturing recovery in the second quarter of 2012 is a harbinger that slow economic growth looms, according to a new report from the Manufacturers Alliance for Productivity and Innovation (MAPI). Inflation-adjusted gross domestic product (GDP) will expand by 2.0% in 2012 and by 1.7% in 2013, down from the 2.2% anticipated for each year in MAPI’s May report.

“The annual growth rate will decelerate as the pace of business equipment spending slows,” notes Daniel J. Meckstroth, MAPI’s chief economist. “While there is pent-up demand for replacing worn equipment, productivity-improving investment and capacity expansion, it is the uncertainty about the ‘fiscal cliff,’ declining business activity in Europe, and worries about a hard landing in China that are holding back longer-term commitments.”

Manufacturing production is expected to show growth of 4.5% in 2012 and 2.3% in 2013. The 2012 figure is down from 5.2% and the 2013 estimate is down from 3.3% from the May forecast. Manufacturing is expected to see a net increase in hiring, with the sector forecast to add 208,000 jobs in 2012 and 231,000 jobs in 2013. These figures are well below the May forecast of 312,000 jobs in 2012 and 361,000 jobs in 2013.

Manufacturing exceeded GDP growth in the first quarter of 2012, increasing at a healthy 10.0% annual rate compared to 1.0% for GDP, with the unseasonably mild winter and inventory rebuilding explaining some of the surge, according to Meckstroth. In the second quarter, manufacturing production grew at only a 1.0% rate compared to 1.7% for GDP.

“We forecast that the pace of manufacturing growth will simply match the slow growth rate in the overall economy during the next three quarters,” Meckstroth says. “However, a faster growth rate in business equipment spending starting in the spring of 2013 should eventually propel manufacturing growth above the rate of expansion in the general economy.”

Production in non-high-tech industries is expected to increase by 4.7% in 2012 and by 2.4% in 2013. High-tech manufacturing production, which accounts for approximately 10% of all manufacturing, is anticipated to grow at a 4.9% rate in 2012 and 5.8% in 2013.

The forecast for inflation-adjusted investment in equipment and software is for growth of 8.0% in 2012 and 7.1% in 2013. Capital equipment spending in high-tech sectors will also rise. Inflation-adjusted expenditures for information processing equipment are anticipated to increase by 5.6% in 2012 and by 8.5% in 2013.

MAPI expects industrial equipment expenditures to advance by 8.9% in 2012 and by 10.1% in 2013. The outlook for spending on transportation equipment is for growth of 18.3% in 2012 and 6.6% in 2013. Spending on nonresidential structures will improve by 9.8% in 2012 before decelerating to 3.6% in 2013.

Inflation-adjusted exports are anticipated to improve by 3.8% in 2012 and by 3.7% in 2013. Imports are expected to grow by 3.7% in 2012 and by 4.1% in 2013. MAPI forecasts overall unemployment to average 8.2% in 2012 and 8.1% in 2013.

The price per barrel of imported crude oil is expected to average $99.60 per barrel in 2012 and $92.50 in 2013.

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