Manufacturing production to grow 3.6% in year 2000
While manufacturing production climbs 2.7% this year and 3.6% next year, capacity utilization will edge up slightly. Expect wage growth to continue.
By Elizabeth Baatz -- Modern Materials Handling, 11/1/1999
According to recent reports from the U.S. Federal Reserve Board, manufac-turing activity is accelerating now in almost every industry and every region in the U.S. As a result, forecasts for manufacturing have been revised upward. The latest outlook for U.S. industrial production calls for gains in all sectors, except mining and utilities, next year.Most likely, some of the recent activity has to do with companies building up supplies in expectation of Y2K global supply disruptions. Also, expect business inventories to pick up at the end of 1999 and early 2000. Manufacturing inventory-to-sales ratios are at record lows, and despite just-in-time procurement trends, some restocking will be taking place. Finally, growing exports and a cyclical upturn in commodity markets will be driving gains in 2000.
Overall, manufacturing output is expected to rise 3.6% in next year, on the heels of a modest 2.7% gain in 1999 and a robust 4.2% pickup in 1998. Capacity utilization will follow suit with factories operating at 79.7% capacity in 2000, edging up from 79.4% in 1999.
Industrial production growth will be strongest in the durable goods sector thanks to continued consumer demand for motor vehicles and electronics products. U.S. output of computers will grow 40% in 2000, about on par with 1999's expected 39% growth rate. Producers of electrical machinery, which includes electronic components production, will keep factories humming, too, albeit the hum will not be as loud as in 1998. Industrial production among manufacturers of transportation equipment is forecast to rise 3.9% in 2000. Production of automobiles and light duty trucks, however, will grow just 0.8% in 2000 after surging ahead 6.5% in 1999.
One of the most significant features in the outlook for the manufacturing sector will be a return to growth in the heavy commodities industries. For example, after dropping 1.3% in 1998 and falling an expected 1.5% in 1999, primary metals production is forecast to rise 1.2% in 2000. Iron and steel production is expected to climb 3.8%. Meanwhile, the nonferrous metals industry will grow output by 3.2% next year. An economic recovery in Asia and higher prices for aluminum, copper, and other metals will help push factories to increased production.
Another important feature of the outlook will be the return of inflation. Among 319 manufacturing industries analyzed by our firm, Thinking Cap Solutions, nearly one third dropped average product prices in 1998 and again in 1999. But in the coming year, only 54 industries are expected to push average prices lower. And, among these 54, two-thirds will see deflation trends slow down from 1999 levels. Wage hikes will also likely become an additional burden to manufacturers next year. However, excess global capacity in many industrial markets will help keep price and wage hikes to a minimum.
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