Economic growth tapers off

Growth in the U.S. economy slowed in 2006 and will continue its deceleration in 2007. The slowdown will affect the manufacturing, warehousing and materials handling sectors.

By Corinne Kator, Associate Editor -- Modern Materials Handling, 1/1/2007

The pace of the U.S. economy has clearly slowed since the vigorous growth of 2004 and 2005. Gross domestic product (GDP) and manufacturing productivity grew at more moderate rates in 2006, and that moderation is expected to continue in the year ahead. The rapidly growing materials handling equipment market is expected to slow its pace in 2007 as well.

At the close of 2006, GDP was growing at about 2.5%. At that rate, products are more available because supply can keep up with demand, says Jim Haughey, an economist for Reed Business Information, the parent company of Modern.

"Going forward, the economy is going to grow at 2.5 to 3%," says Haughey. "That's strong enough to keep everybody's sales rising, but not as quickly as in 2004 and 2005."

The U.S. manufacturing sector grew about 5% in 2006, but that growth tapered off in the last few months of the year.

"The recent weakness has been in construction materials and anything related to automobiles," Haughey says, "And there's still some lingering effect from high oil prices earlier this year."

Most manufacturing markets are experiencing moderate inventory surpluses, he says, so he expects manufacturing to grow at just 2.5 to 3% in the coming months as manufacturers sell off existing inventory.

Materials handling equipment sales reached record levels for the fourth year in a row in 2006, and the Material Handling Industry of America (MHIA, www.mhia.org) expects 2007 to be another record year. The rate of growth in the materials handling equipment market is slowing, however.

MHIA estimates materials handling equipment shipments grew around 10.5 to 13.5% in 2006 and predicts that growth will slow to 6.5 to 8% in 2007.

Construction in the warehousing and distribution sector has been relatively inactive, says Haughey. While the nonresidential construction market surged in 2006, few of those new buildings were warehouses.

"There hasn't been a sense that we need more space," he says, adding that he doesn't expect the situation to change in 2007.