Manufacturing production eased in the second quarter of 2013 following a stellar first quarter, but it should pick back up, not just in the last two quarters of this year, but in 2014 and 2015 as well, a recent analysis suggests.

According to the U.S. Industrial Outlook, a quarterly study by the Manufacturers Alliance for Productivity and Innovation (MAPI), manufacturing decreases at a 0.8 percent annual rate, a correction for the splendidly strong pace of manufacturing production – 5.2 percent annual rate – in the first quarter relative to meager growth in the overall economy.

But MAPI forecasts that manufacturing production will increase 2.2 percent in 2013, a deceleration from the 3.1 percent forecast in June 2013. A pickup is likely in 2014, with growth anticipated to be 3.2 percent, though that forecast is down from 3.6 percent in the previous report.

Manufacturing production should outperform GDP growth, which MAPI calculated in its report will be 1.6 percent in 2013 and 2.8 percent in 2014.

The report, which analyses 27 industries, also makes an initial forecast for manufacturing production for 2015, predicting 4.1 percent growth. That’s an increase from its most recent economic forecast anticipating GDP growing 3.4 percent in 2015.

Meanwhile, inflation-adjusted GDP increased at a 2.5 percent annual rate in the second quarter of 2013.

“The outlook for 2014 and 2015 calls for close to a percentage point improvement in the growth rate each year,” says MAPI Chief Economist Daniel J. Meckstroth, who authored the report. “Consumer spending growth has remained remarkably stable because of surprisingly robust employment growth in the sluggish economy, the payroll tax increase is in the rearview mirror, spending will accelerate in 2014, and households have low debt burdens and their wealth position is rising.”

“In addition, businesses are well positioned for making new investments in structures and equipment,” Meckstroth adds. “What is needed is more confidence about the future. With the Eurozone coming out of recession, export activity should pick up and provide a boost to business sentiment.”


Meckstroth tells Industry Today that while MAPI did not expect to see an increase quite as high as what it saw in the first quarter, it did expect to see a small increase rather than a decline.

“We knew it was going to decelerate,” he says. “It couldn’t sustain that high rate of growth relative to the economy, but we didn’t expect the decline. Manufacturing can’t sustain that kind of differential relative to the economy, so it’s building inventories to some extent.”

It is not unusual for manufacturing to go through these types of ups and downs in production. For instance, Meckstroth says last year manufacturing production increased at an 8.1 percent annual rate – extremely strong relative to the economy – before going through “a period of six months of virtually flat growth.”

“There was a positive growth of 1.6 percent in the second quarter (of last year), then negative growth by half of a percent in the third quarter,” Meckstroth says. “You had this surge in the first quarter followed by their drought or this leveling out, and then it picked up in the fourth quarter. And then we had another surge again this year in the first quarter, and it was followed by a correction in the second quarter.”

Meckstroth says he expects MAPI’s forecasted acceleration in manufacturing activity for the second half of this year, and in 2014 and 2015, to be “more driven by the investment side of manufacturing than the consumer side like we’ve seen in the past.”

He adds: “We expect to be more investment led. It’s not that there is going to be an investment boom, but we certainly expect to see more investment-led growth than consumer-led growth when we get into this, particularly in 2014 and 2015. And we expect manufacturing will continue to grow faster than the general economy, though not substantially faster.”

The report also offers economic forecasts for 23 of the 27 industries. MAPI anticipates that 14 industries will show gains in 2013, three will remain flat, and six will decline. Housing starts, for example, should see a 20 percent increase. Housing starts grew by 21 percent in the three months ending in July compared with the same period one year earlier.

“You are seeing a ramp up in the housing supply chain of wood products and appliances and some of the structural metals,” Meckstroth explains.

Furthermore, both motor vehicles and parts production and household appliances are forecast to advance by 7 percent, according to the report.

The outlook improves in 2014, with growth likely in 22 of 23 industries, led by housing starts at 30 percent. Public works construction is the lone industry expected to decline in 2014, by 1 percent.

According to the report, non-high-tech manufacturing production – which accounts for 95 percent of the total – is anticipated to increase 2.1 percent in 2013 and 3.1 percent in 2014. High-tech industrial production, such as computers and other electronic products, is projected to expand by 5.2 percent in 2013 and 7.6 percent in 2014.

And 13 of the 27 industries MAPI monitors had inflation-adjusted new orders or production at or above the level of one year ago (the same as reported last quarter) and 14 declined.

Material handling equipment grew 9 percent year-over-year through June. The largest drop came in electronic computer shipments, which declined by 43 percent over the same time frame.

“Durable goods are picking up and growing faster than the other industries, particularly the non-durables,” he says. “That’s because they were postponed. Spending was postponed during the recession. There are items that have a life of three years or more, so you can postpone buying them. But when the economy does get back to a better pace of growth, then consumers and businesses start buying these durable goods, and that’s what you’re seeing.”

About the Manufacturers Alliance for Productivity and Innovation (MAPI)
The Manufacturers Alliance for Productivity and Innovation (MAPI), founded in 1933, contributes to the competitiveness of U.S. manufacturing by providing economic research, professional development, and an independent, expert source of manufacturing information.


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