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Strong Dollar Offsets Low Energy and Boosts Manufacturing Sector

March 27, 2015

The MAPI Foundation forecasts manufacturing production growth of 3.7% in 2015 and 3.6% in 2016. Manufacturing will continue to grow faster than the overall economy, which the MAPI Foundation anticipates will advance by 3.0% in 2015 and 2.7% in 2016.

Manufacturing industrial production increased at a 3.8% annual rate in the fourth quarter of 2014 and posted 3.6% growth for the year as whole—over a percentage point higher than the 2.4% gain in the overall economy, according to MAPI Foundation's U.S. Industrial Outlook

"The good news is that low energy prices lower manufacturing costs and allow consumers to buy more non-energy goods and services," wrote MAPI Foundation Chief Economist Daniel J. Meckstroth, Ph.D. "The offset is that low prices will depress the energy infrastructure buildup and the strong dollar will raise the trade deficit in manufacturing.

"The shifting forces offset and leave overall manufacturing production growing close to the same pace as last year—though thankfully, still faster than the pace of growth in the overall economy," he noted.

With an improving employment outlook—meaning more workers with incomes—Meckstroth predicts solid consumer spending and purchases of big-ticket items such as motor vehicles, houses, and appliances. Business investment should ramp up as well; Meckstroth noted that firms have cash and are profitable, utilization rates are high, and credit is available.

The report offers economic forecasts for 23 industries. The MAPI Foundation anticipates that 21 will show gains in 2015, 1 will remain flat, and only 1—mining and oil and gas field machinery—will decline. The top industry performer will be housing starts with growth of 16%.

The outlook remains bright in 2016, with growth likely in 22 industries, led by housing starts at 14%. Mining and oil and gas field machinery is expected to plummet by 19%, as lower oil prices will discourage most shale drilling which will affect oil field investment.

According to the report, non-high-tech manufacturing production (which accounts for 95% of the total) is anticipated to increase 3.4% in 2015 and 3.1% in 2016. High-tech industrial production (computers and electronic products) is projected to expand by 6.1% in 2015 and 9.1% in 2016.