Due to continued weakness in the housing sector, the Manufacturers Alliance/MAPI's quarterly forecast is predicting inflation-adjusted GDP growth of 1.9% for 2007 which is much lower that the 3.3% in 2006. Looking to 2008, the group sees an increase of 2.5%.
"The housing downturn will likely be more severe, more widespread, and last longer than most analysts expected," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist. "Financial institutions are reluctant to take on mortgages. Problems in subprime lending are affecting prime loans and have set off a general re-pricing of risks in financial markets. The housing collapse is worse than we thought and will reduce GDP growth next year. Manufacturing is buttressed, however, by somewhat better prospects in the trade sector. Exports are expected to perform well in relation to imports and moderately reduce the trade deficit."
Manufacturing production growth will decelerate this year, trending downward from 4.7% growth in 2006 to 2% growth in 2007, according to the Alliance. Concurrent with the overall GDP, however, MAPI forecasts industrial production to rebound fairly significantly, increasing 2.9% in 2008.
One segment that should maintain decent growth in manufacturing is computers and electronic products. Inflation-adjusted spending for this sector is forecast to rise a solid 10.8% in 2007 and 11.8% in 2008. Production in non-high-tech industries, however, will grow by a far more modest 0.9% this year and by 1.7% in 2008.
Expenditures for information processing equipment are expected to rise 7.1% in 2007 and 6.1% in 2008, while investment in equipment and software should decelerate to 0.8% growth in 2007 before posting 4.4% growth in 2008 --both are well below the growth rate that would be considered normal at this stage of the business cycle.
Expenditures for industrial equipment expenditures will increase 1.6% in 2007 before declining by 1.7% in 2008. However spending on transportation equipment will decline by 10.6%, before it sees growth in 2008 of 7.8%.
MAPI predicts export growth of 6.8% in 2007 and 9.1% in 2008, while imports are expected to increase 2.3% in 2007 and 4.3% in 2008.
The forecast for the unemployment rate remains low, at 4.6% in 2007 and 4.8% in 2008.