MAPI Economic Forecast: Confluence of sluggish pace, volatility, optimism

U.S. economic growth will be somewhat restrained, but not deterred, and improving fundamentals provide reason for optimism by the end of 2013 and through 2014, according to a new forecast.

The Manufacturers Alliance for Productivity and Innovation (MAPI) Quarterly Economic Forecast predicts that inflation-adjusted gross domestic product (GDP) will expand 1.8% in 2013 and 2.8% in 2014, showing no change from MAPI’s February 2013 report.

Manufacturing production, however, is expected to show growth of 3.1% in 2013 and 3.6% in 2014. The 2013 figure is an increase from 2.2% and the 2014 estimate is on par with the 3.6% predicted in the February forecast.

“There are a number of reasons for an improved outlook,” noted MAPI Chief Economist Daniel J. Meckstroth, Ph.D. “Consumer deleveraging is close to an end and households have the capacity to use more credit; housing prices are rising and with that change comes a virtuous cycle of increasing wealth, consumption, and income that feeds back into more housing activity; pent-up demand is releasing postponed spending for consumer durable goods; and the job market is repairing itself—employment growth is more balanced among the various sectors.”

Meckstroth noted that growth prospects might have been higher without the headwinds of wages rising lower than inflation; spendable income being reduced by higher taxes; government austerity worsening as sequestration cuts are reflected in spending reductions; and negative net exports both this year and next.

Production in non-high-tech industries is expected to increase 3.0% in 2013 and 3.5% in 2014. High-tech manufacturing production, which accounts for approximately 10% of all manufacturing, is anticipated to grow 4.4% in 2013 and 6.1% in 2014.

The forecast for inflation-adjusted investment in equipment and software is for growth of 5.6% in 2013 and 7.4% in 2014. Capital equipment spending in high-tech sectors will also rise. Inflation-adjusted expenditures for information processing equipment are anticipated to increase 6.3% in 2013 and 8.0% in 2014.

MAPI expects industrial equipment expenditures to advance 5.0% in 2013 and 11.4% in 2014. The outlook for spending on transportation equipment is for growth of 1.6% in 2013 and 5.5% in 2014. Spending on nonresidential structures will advance 2.6% in 2013 before improving 4.8% in 2014.

Inflation-adjusted exports are anticipated to increase 2.0% in 2013 and 4.5% in 2014. Imports are expected to grow 1.7% in 2013 and 5.2% in 2014. MAPI forecasts overall unemployment to average 7.6% in 2013 and 7.2% in 2014.

“Despite the volatility and struggle for growth, economic fundamentals have definitely improved,” Meckstroth said.

Such positives can be seen in MAPI’s prospects for employment. Manufacturing is expected to see a net increase in hiring, with the sector anticipated to add 137,000 jobs in 2013, well above the February forecast of 87,000 jobs. The outlook is for an increase of 352,000 jobs in 2014, an even larger advance from the 289,000 previously forecast.

The refiners’ acquisition price per barrel of imported crude oil is expected to average $96.80 per barrel in 2013 and $93.60 in 2014.