U.S. Growth will Slow to 2.1% in 2007

Manufacturing growth will decline to 1.9% in 2007 says industry group.

In its quarterly report The Manufacurers Alliance/MAPI Quarterly predicts that inflation-adjusted GDP growth will slow to 2.1% in 2007 and to 1.3% in 2008. "The U.S. economy in the past has experienced a recession from fewer shocks than we are now experiencing," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist." By itself the housing collapse would probably not cause a recession, but when combined with a credit crunch, falling housing prices, record oil prices, falling corporate profits, low consumer confidence, and decelerating employment growth, the risk of recession has climbed to at least 50%."

Manufacturing production growth will show a significant decline from 4.7% growth in 2006 to an estimated 1.9% in 2007, and is forecast to remain flat in 2008. These figures are down from the previously expected 2% and 2.9% growth, respectively. Production in non-high-tech industries is forecast to grow only 0.9% this year and to decline by 1.2% in 2008.

The report found that spending for computers and electronic products is expected to rise 11.5% in 2007 and 10% in 2008. Spending for information processing equipment are expected to rise 7.7% in 2007 and 5.3% in 2007, growing several times faster than the general economy. Real investment in equipment and software, though, should increase by only 1.4% in 2007 and 2% in 2008.

The forecast calls for industrial equipment expenditures to increase 2.5% before declining by 3.4%, respectively, in the same years. The outlook for spending on transportation equipment calls for a 10.3% decline in 2007 followed by a further 2% decline in 2008. However, aerospace equipment should grow by 11.8% in 2007 and by 12.1% in 2008.

Looking at export growth, the Alliance predicts a rise of 7.7% in 2007 and 8.7% in 2008, while imports are expected to increase 2.1% in 2007 and 1.5% the following year.

"If the U.S. economy is able to avoid a recession next year, it will be due primarily to the declining value of the dollar and strong global growth, which shows up as substantial growth contribution from net exports," Meckstroth said. "In addition, government spending growth should contribute positive momentum."

The forecast for the unemployment rate is 4.6% in 2007, rising to 5.3% in 2008.

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