Manufacturing Forecast: Faster 2005, Slower 2006

Six months ago, Manufacturers Alliance/MAPI expected US. Manufacturing production to increase 3.5% this year and 3.6% in 2006. Now the Arlington, Va.-based business and public policy research group expects a 3.8% increase this year and 2.9% next year. In short, 2005 is expected to be better than expected; 2006 is expected to be less than expected.

Rising oil prices are a factor. "High energy costs directly affect manufacturing costs, and they indirectly reduce the demand for manufactured goods by consumers and businesses as discretionary funds are redirected towards paying for energy," explains Daniel J. Meckstroth, the alliance's chief economist.

Still, in its latest forecast the alliance expects computer equipment, communications equipment, and mining and oil and gas field equipment to post double-digit production growth both this year and next. However, production of non-high-tech goods, a category that Meckstroth describes as "the vast bulk of manufacturing," isn't likely to do nearly as well. Growth is expected to 2.5% this year and 2.2% in 2006, "slower than the overall economy," notes Meckstroth.

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