Exports Could Provide Some Relief to Volatile Conditions in Manufacturing

The Manufacturers Alliance/MAPI forecasts mild recession for first half of 2008 before rebounding end of year.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted GDP growth will slow to 1.3% in 2008 before improving to 2.5% in 2009. GDP growth will be down an average of 0.6% in the first two quarters before returning to growth in the second half of 2008.

"Recessions are caused by severe shocks," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist. "The housing collapse, severe decline in housing prices, record high oil prices, and subprime mortgage induced credit crunch have already caused consumer confidence to plummet and employment to fall, and economic conditions will get worse before they improve. A tax rebate and aggressive monetary policy easing will help stimulate a recovery later this year."

Manufacturing production growth will show a significant decline from an already low 1.9% growth in 2007 to an estimated 0.5% in 2008, preceding a solid upswing to 3.4% in 2009. Production in non-high-tech industries is anticipated to decline 1.2% this year and to grow by 2.6% in 2009.

There is also some positive news in the computers and electronics products sector, as high-tech industrial production is expected to rise 14.3% in 2008 and 10.1% in 2009.

Investment in equipment and software should increase by 1.2% in 2008 and by 4% in 2009. The largest percentage gains in capital equipment spending will come in the high-tech sectors. Expenditures for information processing equipment are expected to rise 5.6% in 2008 and 2.9% in 2009. The forecast calls for industrial equipment expenditures to decline by 7.1% this year before rebounding to 1% growth in 2009. The outlook for spending on transportation equipment calls for a 4.4% decline in 2008 followed by a robust recovery to 11.7% growth in 2009.

MAPI believes this current soft patch will be followed by some strengthening in the economy. Export growth should outpace that of imports by a wide margin by the end of 2009. Inflation-adjusted exports should rise 8.1% in 2008 and 9.9% in 2009, while imports are only expected to increase 0.5% this year and 3.4% next year.

"The U.S. trade imbalance with the rest of the world is beginning to unwind and the additional foreign demand for U.S. products and services will particularly benefit the manufacturing industry," Meckstroth said.

The forecast envisions the unemployment rate to rise to 5.4% in 2008 and to 5.5% in 2009.

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