Manufacturing Growth Will Trail GDP Slightly In 2007 And 2008

Consumers spend less on homes and cars while businesses spend less on equipment and machinery.

Manufacturing production growth will show a fairly significant pullback from the 4.7% growth in 2006 to 2.5% in 2007, according to the Manufacturers Alliance/MAPI Quarterly Economic Forecast. The MAPI forecast predicts industrial production will increase in 2008 to 3.1%.

For inflation-adjusted GDP, the Alliance forecasts 3.4% in 2006 slowing down to 2.8% in 2007 and then rebounding to 3.2% in 2008.

"The U.S. economy is facing the significant headwinds of a retrenchment of consumer spending for big ticket purchases of homes and motor vehicles," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist. "The relatively high interest rates and energy prices are also having the predicted lagged effect of slowing economic growth."

Spending for computers and electronic products is forecast to rise a robust 16.3% in 2007 and 10.5% in 2008 says the Alliance. Production in non-high-tech industries will grow by a far more modest 1.2% this year and 2.5% in 2008.

"High-tech industries (as defined by the Federal Reserve) account for about 5% of manufacturing and have high unit growth rates, in part, due to hedonic price adjustments," Meckstroth explained "With major consumer markets in decline (housing and motor vehicles) and deceleration in business machinery and equipment spending growth, there is not much momentum in the manufacturing sector this year."

Large percentage gains in spending will come in the high-tech sectors. Expenditures for information processing equipment are expected to rise 7.5% in 2007 and 9% in 2008, continuing to grow several times faster than the general economy. Nevertheless, investment in equipment and software should decelerate to 5% growth in 2007 before posting 6.8 % growth in 2008.

Industrial equipment expenditures will increase to 2.3% in 2007 and 2%, in 2008.

Transportation equipment will gain 2.2% in 2007 and 7.7% in 2008 driven primarily by the aerospace rebound.

Exports should rise 8.6% in 2007 and 9.1% in 2008, while imports are expected to increase 3.7% in 2007 and 5.3% the following year.

The forecast for the unemployment rate is 4.7% in 2007 and 4.6% in 2008.

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