Industrial Equipment will Face Negative Growth in 2009

MAPI forecasts a rough road ahead.

The weakness in the U.S. economy shows no signs of immediate abatement, and significant challenges may last well into 2009, according to a report released on August 21 by the Manufacturers Alliance/MAPI. The group forecasts gross domestic product (GDP) growth slowing down to 1.6% in 2008 and decelerating to 1.3% in 2009.

The 2009 GDP forecast is down from 1.9% growth projected in MAPI's May report. "The Internal Revenue Service accelerated the payment of tax rebates this year under the economic stimulus plan, getting cash in consumers' hands earlier than expected," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. "The cash windfall is only temporary, and we expect a corresponding decline in spending in fourth quarter 2008 and into early 2009."

Manufacturing production growth is expected to sink into negative territory in 2008, declining 0.5% following an already low 1.7% growth in 2007. It is forecast, though, to return to positive range, albeit a weak 1.6%, in 2009.

Production in non-high-tech industries is anticipated to decline 1.8% this year and to grow by 0.2% in 2009. And high-tech industrial production is expected to rise 15.7% in 2008 and 14.7% in 2009.

Investment in equipment and software should increase by 0.8% in 2008 and by 2.3% in 2009, according to the report. And the largest percentage gains in capital equipment spending will come from high-tech sectors. Expenditures for information processing equipment are expected to rise 8.1% in 2008 and 5.7% in 2009, up from 6.9% and 3.3%, respectively, in the May report.

In addition, the forecast calls for industrial equipment expenditures to decline by 0.4% this year and to further decline by 7.1% in 2009. The outlook for spending on transportation equipment calls for an 18.2% decline in 2008 followed by a recovery to 7.6% growth in 2009.

Exports are predicted to outpace that of imports by a wide margin rising to 8.4% in 2008 and 7.3% in 2009. While imports are expected to decline by 1.4% this year and to increase by only 0.4% next year.

"Consumers are reducing discretionary purchases; these items tend to be imported," Meckstroth added. "At the same time, a weak dollar has improved the competitive position of U.S. exports of goods and services in the world marketplace. A declining dollar is beneficial and has made a major contribution in keeping the economy growing amid severe economic shocks."

The forecast envisions the unemployment rate to average 5.4% in 2008 and 6% in 2009.

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