Moderate Growth Likely Pending 'Fiscal Cliff' Compromise

Manufacturing is expected to see a net increase in hiring, with the sector expected to add 163,000 jobs in 2013. 

While acknowledging that major issues still need to be addressed, the Manufacturers Alliance for Productivity and innovation (MAPI) is sounding upbeat enough to predict that "the U.S. economy could be in a transition from sluggish growth to a longer period of moderate growth, according to a new report." 

However this does presume that United States is able to get its "fiscal house in some semblance of order."

The group expects GDP will expand by 1.8% in 2013 and by 2.8% in 2014.

The forecast includes a five-year window where it envisions GDP growth averaging 2.7% form 2013-2017, a subpar expansion following a deep recession, and with a high of 3.3% growth in 2015.

 MAPI believes final 2012 GDP growth will be 2.1% and manufacturing production will be 4.2%.

"Much of the outlook is predicated on political dynamics," noted Daniel J. Meckstroth,  MAPI chief economist. "In order for the transition to moderate growth to occur successfully, there needs to be compromise on the ‘fiscal cliff’ issues, agreement on raising the debt ceiling early in 2013, and establishing a 'grand compromise' plan for meaningful long-term federal deficit reduction that phases in over several years."

Manufacturing production is expected to show growth of 2% in 2013 and 3.2% in 2014.

The 2013 figure is down from 2.3% and the 2014 estimate is down from 3.3% from the August forecast.

Hiring Will Increase

Manufacturing is expected to see a net increase in hiring, with the sector expected to add 163,000 jobs in 2013, below the August forecast of 231,000 jobs.

The longer term outlook is for an increase of 270,000 jobs in 2014 and 230,000 jobs in 2015, but a rise of only 150,000 jobs in 2016 and 97,000 jobs in 2017.

Production in non-high-tech industries is expected to increase by 1.8% in 2013 and by 3.7% in 2014. High-tech manufacturing production, which accounts for approximately 10% of all manufacturing, is anticipated to grow at a 3% rate in 2013 and 8.3% in 2014.

The forecast for inflation-adjusted investment in equipment and software is for growth of 6.1% 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 by 7.2% in 2013 and by 9.3% in 2014.

MAPI expects industrial equipment expenditures to advance by 5.2% in 2013 and by 8.6% in 2014. The outlook for spending on transportation equipment is for growth of 6.2% in 2013 and 4% in 2014.

Spending on nonresidential structures will improve by only 0.6% in 2013 before improving by 6.8% in 2014.

Exports are anticipated to improve by 2.3% in 2013 and by 4.1% in 2014. Imports are expected to grow by 3.9% in 2012 and by 4.7% in 2013.

MAPI forecasts overall unemployment to average 7.8% in 2013 and 7.4% in 2014. Over the five-year aggregate window of 2013-2017, unemployment is expected to average 6.8%.

"The unemployment rate will continue to fall but will not achieve 5% unemployment, the rate consistent with full employment," Meckstroth said. "We forecast the average annual growth rate for manufacturing production will be 3.2% over the next five years, higher than the 2.7% anticipated for the overall economy."

For more on the fiscal cliff and its impact on manufacturing, click here.

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