Recession Tightens Its Grip on Major Manufacturing Industries

MAPI sees 'anemic' production growth in 2008.

While the current U.S. industrial slowdown shows few signs of abating, a trio of positive factors should highlight at least some production growth in the second half of 2008, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook. The manufacturing sector is in a recession, whether a recession is officially declared for the general economy or not," said Daniel J. Meckstroth, Ph.D., Chief Economist for the Manufacturers Alliance/MAPI, and author of the analysis. "Yet as the housing collapse worsens, and drags with it related industries, the Federal Reserve's actions to dramatically lower interest rates, robust rebate checks now being sent to American consumers, and continued strong net exports will lead to production growth in the second half of 2008."

On an annual basis, MAPI forecasts slight growth in the industrial sector this year. Manufacturing production is expected to increase 0.4% in 2008 before improving to 3.1% growth in 2009.

Manufacturing industrial production, measured on a quarter-to-quarter basis, declined at 0.6% annual rate in fourth quarter 2007, fell by 1.4% in first quarter 2008, and is further expected to decline at a 2.5% annual rate in second quarter 2008 before resuming growth.

Exports, though, could provide a bit of a lifeline. According to MAPI's previously released quarterly economic forecast, inflation adjusted exports are expected to expand by 8.3% in 2008 and by 9.7% in 2009, partially offsetting some of the negative effects of the housing crisis.

"High tech industries such as computers, communications equipment and semiconductors, continue to post double-digit volume growth and thus mitigate the more severe downturn that is occurring in non-high tech manufacturing, Meckstroth said.

Non-high tech manufacturing production declined at a 2.3% annual rate in first quarter 2008 and is on pace to fall at a 4% annual rate in the second quarter.

Four industries enjoyed strong, double-digit year-over-year growth in the first quarter, led by communications equipment at 23%; aluminum and alumina, and material handling equipment each improved by 13%; and private non-residential construction enjoyed 12% growth.

Aerospace products and parts is expected to maintain its positive trend with a forecast of 7% growth in 2008, followed by 15% growth in 2009.

Some industries are expected to experience negative change in both 2008 and in 2009 with appliances and electric lighting equipment being hit the hardest. Appliance production is expected to decline by 15% in 2008 and by 2% in 2009 while electric lighting equipment production is anticipated to drop by 12% and by 3%, respectively. Other industries include construction machinery with a 4% decline in 2008 followed by a 1% drop in 2009, and fabricated metal products, expected to fall by 1% both this year and next year.

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