Industry Groups Says Industrial Sector at Tipping Point of a Recession

Challenges in 2008 should precede recovery in 2009; aerospace continues its strength.

The U.S. manufacturing sector will face turbulent times next year due in large part to the continuing housing collapse, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook. As a result, the economic landscape will remain highly volatile in 2008 before rebounding in 2009, according to MAPI.

MAPI forecasts a mild manufacturing recession next year. Manufacturing production is expected to increase 1.9% in 2007. The Alliance predicts no growth in 2008 -- including a slight decline in non-high tech industries -- before rebounding to 2.6% growth in 2009.

"Five economic shocks are contributing to halt industrial growth," explains Daniel J. Meckstroth, Ph.D., chief economist for MAPI. "The shocks are: a significantly worse housing start outlook; the negative impacts of falling housing prices on consumer spending; the credit crunch; high gasoline and record high fuel oil prices, and if we have an exceptionally cold winter, natural gas prices could also spike; and, finally, the economy is generating less job growth," he added.

Some industries showed strong, double-digit year-over-year growth in the third quarter, including communications equipment at 15%; electrical equipment at 12%; aerospace products and parts grew by 11%. The largest drop came in equipment industries. Ventilation, heating, air conditioning, and commercial refrigeration experienced the most retrenchment, declining by 12%.

Next year should be particularly difficult for the manufacturing sector with MAPI forecasting only 10 of 24 industries to show growth, led by mining and oil and gas field machinery at 14% growth, and aerospace products and parts improving by 12% with growth in 2009 expected at 14%.

Three industries are forecast to have negative change in both 2008 and in 2009. Electric lighting equipment is forecast to decline by 5% in 2008 and by 7% in 2009; electrical equipment will show negative growth by 7% and 3%, respectively; and industrial machinery will decline by 5% in 2008 and by 1% in 2009.

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