Manufacturing Expected to Begin Recovery in 2010

Weakness in 2009 to be followed by modest growth in 2010 and 2011

The U.S. manufacturing sector may finally be poised to shake off the worst period of industrial performance since the 1930s, but economic growth is likely to be relatively sluggish, according to the Manufacturers Alliance/MAPI's latest U.S. Industrial Outlook report.

"Unfortunately there are no quick fixes, but time, the normal inventory cycle, and the repair of financial institutions have lessened the economic slide to a point where signs of stabilization have appeared," said Daniel Meckstroth, chief economist for the Manufacturers Alliance/MAPI and author of the analysis. "Recently housing starts have been increasing on a month-to-month basis, auto sales have picked up a bit, and the worst of inventory destocking is over. These and several other indicators point to a bottoming out in the recession."

On an annual basis, MAPI forecasts manufacturing production to fall 12% in 2009, preceding 3% growth in 2010 and 5% growth in 2011.

Manufacturing industrial production, measured on a quarter-to-quarter basis, declined at a 10% annual rate in the second quarter of 2009 after falling at a 22% annual rate in the first quarter. The manufacturing recession continued to be "intense and widespread" in the second quarter, according to Meckstroth.

The largest drop came in steel production, which declined 58%. Drilling activity fell by 48%, housing starts by 47%, and industrial machinery by 45%.

The manufacturing sector should begin to rebound in 2010, with MAPI forecasting 14 of 24 industries to show gains, led by housing starts with a 59% rebound from historically low levels. The turnaround should continue in 2011 with growth likely in all 24 industries, including seven by double digits, led by housing starts at 40% and industrial machinery at 25%.

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