Experts: Risk of Double-Dip Recession at 40%

Manufacturing economists say instability in Europe could push the U.S. back into a recession.

A stagnant housing market, political gridlock in Washington and economic instability in Europe could push the United States back into a recession if conditions don't improve, says Daniel Meckstroth, chief economist with the Manufacturers Alliance/MAPI.

The probability of a double-dip recession is 40%, says Meckstroth, while commenting on the state of the economy and its impact on manufacturing Oct. 19 during an economic forum hosted by the National Association of Manufacturers. The likelihood of a mild recession in Europe could lead to a banking crisis in the region that could create a credit freeze similar to what the United States experienced, Meckstroth says.

Manufacturing production is 10% below the prerecession peak and is not expected to reach its previous peak until the second quarter of 2014, Meckstroth says.

Political policy could also have a major impact on the probability of a recession, Meckstroth says.

"Completely irresponsible political policy put us on the verge of default over the debt ceiling taking us to the last minute where we would default on our debt obligations was just absolutely irresponsible," Meckstroth says. "It would have been absolutely catastrophic. The political gamesmanship is the second-highest risk."

In the investment goods side of manufacturing, high oil prices have positively impacted manufacturers involved in the production of mining and drilling equipment, Meckstroth says. Strong factory utilization rates have had a positive impact on metalworking equipment and industrial machinery. The transportation sector, including aerospace and heavy-duty truck construction have also been strong.

The materials side of manufacturing, including the metals industry, showed strong growth this year, has been impacted by commodity prices. Next year all material production will be relatively modest, Meckstroth says.

The housing market is still in a recession, putting pressure on manufacturers that supply the industry but there are some signs the market is improving, says Emil Berendt, chief economist with Owens Corning, a manufacturer of building and composite material systems.

Homebuilders now find themselves competing with existing homes for business as the price of existing homes have fallen faster than new construction, Berendt says.

The electric manufacturing industry expects modest economic growth in the next year, says Timothy Gill, economics director for the National Electrical Manufacturers Association.

Industrial production will reach approximately 4.2% growth this year and likely half of that in 2012, Gill says.

See also:

IW U.S. 500: The Healing Continues

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