MAPI Quarterly U.S. Industrial Outlook: A pause before an acceleration

A number of key factors indicate that manufacturing has potential for solid growth through 2015, according to the quarterly Manufacturers Alliance for Productivity and Innovation (MAPI) U.S. Industrial Outlook, a report that analyzes 27 major industries.

Manufacturing industrial production increased at a 4.7% annual rate during the fourth quarter of 2013 before flattening out in the first quarter of 2014. Inflation-adjusted GDP decelerated to a 2.6% percent annual rate in the fourth quarter and will likely be less than 2% in the first quarter of 2014. Both declines, however, are anticipated to be short-lived.

Manufacturing production increased 2.3% in 2013. MAPI forecasts growth of 3.2% in 2014, an advance from the 3.1% forecast in the December 2013 report. The momentum is likely to continue in 2015, with growth forecast to be 4.0%, down only slightly from 4.1% from the previous report.

“Factors that were dragging down growth (mainly tax and other policy issues) were absorbed in 2013 and will not worsen over the next two years,” wrote MAPI chief economist Daniel J. Meckstroth, Ph.D., in the analysis. “Consumer-driven manufacturing growth will be relatively stable and supported by employment gains. Households have low debt burdens and their wealth is rising because of higher stock and home prices.

“Business investment–driven manufacturing is responsible for nearly all of the acceleration in production growth,” Meckstroth noted. “Firms have lots of cash, are profitable, and have relatively high utilization rates. Importantly, the two-year federal budget and debt ceiling agreement substantially reduce uncertainty. Now that the Eurozone has come out of recession and emerging markets seem more resilient, export activity should pick up and provide a boost to business sentiment.”

The report offers economic forecasts for 23 of the 27 industries. MAPI anticipates that 20 industries will show gains in 2014 and 3 will remain flat. Growth leaders include housing starts with a 22% increase, industrial machinery at 9%, and electric lighting equipment at 8%.

The outlook is even brighter in 2015, with growth likely in all 23 industries, led by housing starts at 30% and both electric lighting equipment and aerospace products and parts at 11%.

According to the report, non-high-tech manufacturing production (which accounts for 95% of the total) is anticipated to increase 2.9% in 2014 and 3.8% in 2015. High-tech industrial production (computers and electronic products) is projected to expand by 6.8% in 2014 and 7.2% in 2015.

From November 2013 through January 2014, 14 of the 27 industries MAPI monitors had inflation-adjusted new orders or production at or above the level of one year prior (four fewer than reported last quarter), while 10 declined and 3 were flat.

Meckstroth reported that nine industries are in the accelerating growth (recovery) phase of the business cycle; six are in the decelerating growth (expansion) phase; seven are 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.

Source: MAPI