Manufacturing Production on the Rise

The U.S. economy is now in an expansion phase, with the level of production exceeding the previous business cycle peak of fourth quarter 2007, according to the Manufacturers Alliance/MAPI U.S. Industrial Outlook (ER-718), a quarterly report that analyzes 27 major industries.

Manufacturing industrial production, measured on a quarter-to-quarter basis, grew at a 4 percent annual rate in the fourth quarter of 2010, after expanding at a 4.3 percent annual rate in the third quarter. MAPI forecasts that manufacturing production will increase 5.5 percent in 2011 and advance by 4.6 percent in 2012.

Production in non-high-tech manufacturing expanded at a 3.7 percent annual rate during the fourth quarter of 2010. According to the MAPI report, non-high-tech manufacturing production is expected to increase 4 percent in 2011 and 4 percent in 2012. High-tech industrial production rose at a 9.1 percent annual rate in the fourth quarter of 2010. MAPI anticipates this sector will post strong 14 percent growth in 2011 and 15 percent growth in 2012.

Sixteen of the 27 industries MAPI monitors had inflation-adjusted new orders or production above the level of one year ago, six fewer than reported in the previous quarter. One industry, household appliances, had no change. Industrial machinery grew by 49 percent in the three months ending January 2011 compared to the previous three months, while oil and gas well drilling production improved by 37 percent in the same time frame.

The largest drop came in private nonresidential construction, which declined 15 percent, while housing starts experienced a 4 percent decline.

“The industrial recovery is expected to accelerate in 2011,” said Daniel J. Meckstroth, Ph.D., Chief Economist for the Manufacturers Alliance/MAPI and author of the analysis. “Consumer spending for durable goods is likely to grow rapidly thanks to the additional payroll tax cuts passed late last year. Business confidence surveys indicate improvement and a pickup in hiring, therefore employment growth and modest wage increases will generate additional income for purchases. In addition, exports will be another source of faster growth in manufacturing, and expensing for business equipment will particularly expand high-tech business investment.”

Meckstroth reports that five industries are in the accelerating growth (recovery) phase of the business cycle; 15 industries are in the decelerating growth (expansion) phase; two industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and five 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. MAPI forecasts that 22 of the 24 industries will show gains in 2011, led by mining and oil and gas field machinery with expected 18 percent growth, followed by industrial machinery at 17 percent growth. The recovery should continue in 2012 with growth likely in 23 of 24 industries, including five industries which are predicted to grow at double-digit rates, led by housing starts at 61 percent, albeit from depressed levels, and engine, turbine, and power transmission equipment at 19 percent. Public works construction is the only industry anticipated to decline, by 2 percent, in 2012.

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