MAPI Says Stimulus Package/Pent Up Demand Could Offer Potential Growth

Industry group sees manufacturing growth of 2.5% in 2010

The U.S. economy continues to decline, and any recovery promises to be long and arduous. Yet, assuming businesses and consumers find a way through the painful beginning of 2009, there is potential for improvement in late 2009 and into 2010, according to the The Manufacturers Alliance/MAPI Quarterly Economic Forecast. It predicts that inflation-adjusted gross domestic product (GDP), which grew by a miniscule 1.3% in 2008, will decline 2.1% in 2009 before rebounding to 2.2% growth in 2010.

"We are in the midst of a very severe global recession in manufacturing which looks to be the worst recession since 1973-74 in terms of depth and duration," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. "Manufacturing did not create the problem but is paying the price for the problems that began in the financial markets."

Meckstroth indicated that the aforementioned recession lasted from December 1973 through March 1975. The current recession is widely agreed to have started in December 2007. MAPI economists believe it may be late in 2009 or in 2010 before the economy can be seen as stabilizing.

Manufacturing production growth declined by 2.5% in 2008. It is likely to fall significantly further in 2009, with expectations for a 9.2% decline this year. The previous MAPI report had forecast production to decline by 4.2% in 2009. Some relief comes in 2010 with manufacturing production anticipated to grow by 2.5%.

"There are some positives," Meckstroth acknowledged. "The decline in oil prices is like a $230 billion tax cut to consumers and personal tax cuts in the fiscal stimulus will, to some degree, offset the falling house prices. The current production rates in some industries are below replacement levels, and consumers cannot postpone purchases indefinitely, so there will be a bounce-back from this extremely low floor. The fiscal and monetary stimulus is geared toward job creation, which should mitigate some of the job loss and low interest rates will help with mortgages."

Production in non-high-tech industries is expected to decline by 8.4% in 2009 before increasing by 2.2% in 2010. Even the computers and electronics products sector, normally a consistent growth industry, will see a drop-off this year,according to the report. High-tech industrial production is expected to decline by 9.6% in 2009, a precipitous fall from 6.6% growth forecast in the November 2008 report. A rebound, though, of 5.9% growth is expected in 2010.

The investment in equipment and software is likely to decrease by 13.5% in 2009 preceding 7% growth in 2010. Capital equipment spending in high-tech sectors will also feel the pinch. Expenditures for information processing equipment are expected to fall 8.1% in 2009 before rising by 6.3% in 2010.

The forecast expects industrial equipment expenditures to decline by 19.2% this year and to further decline by 6.4% in 2010. Volatility is in the outlook for spending on transportation equipment. The report calls for a 29.8% decline in 2009 followed by a 53.3% increase in 2010.

Exports and imports will both take a substantial downturn in 2009. After increasing by 6.5% in 2008, exports should decrease by 8.3% in 2009 before experiencing 1.2% growth in 2010. Imports are expected to decline by 10.8% this year and to increase by 7.1% next year.

The reduction in labor force will continue with unemployment to average 8.5% in 2008 and 9% in 2010.

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