US Industrial Outlook: Sluggish Growth Ahead

Sept. 13, 2012
After growing at a robust 10% annual rate in the first quarter of 2012, manufacturing decelerated to a nominal 1% in the second quarter.

U.S. industrial activity hit a speed bump in the second quarter of 2012 and the slower growth may delay the transition from modest to moderate growth until the second half of 2014, according to the quarterly “Manufacturers Alliance for Productivity and Innovation (MAPI) U.S. Industrial Outlook” report.

After growing at a robust 10% annual rate in the first quarter of 2012, manufacturing decelerated to a nominal 1% in the second quarter.

MAPI forecasts that industrial production will increase 4.5% in 2012, down from 5.2% in the June report, and 2.3% in 2013, a decrease from 3.3% in the previous forecast. Manufacturing production should outperform GDP growth, which MAPI estimates will be 2% in 2012 and 1.7% in 2013.

“The outlook is for modest growth through the remainder of this year and a gradual increase in 2013, but it will not be until the second half of 2014 that the economy will grow at what could be called a moderate pace,” said Daniel J. Meckstroth, Ph.D., MAPI chief economist.

“Consumers continue to deleverage from debt and therefore can only increase spending commensurate with after-tax income adjusted for inflation,” he added. “Recently, the pace of employment growth has been enough to absorb new entrants to the labor force but not enough to significantly reduce the unemployment rate. Less unemployment insurance income and increases in state and local taxes have eaten away at personal income gains. As a result, consumer spending can rise at only a sluggish pace.”

Looking at specific industries, the engine, turbine, and power transmission equipment sector will grow by 29% while housing starts will see a 24% increase. Public works construction is the lone industry expected to decline in 2013, by 3%.

According to the report, non-high-tech manufacturing production (which accounts for 90% of the total) is anticipated to increase 4.7% in 2012, down from 5.5% in the previous forecast, and 2.4% in 2013, a decrease from 3.2% in the June report.

High-tech industrial production (computers and electronic products) is projected to expand by 4.9% in 2012 and by 5.7% in 2013.

Twenty-one of the 27 industries MAPI monitors had inflation-adjusted new orders or production above the level of one year ago (three more than reported in MAPI’s previous report), five declined, and one was flat. Engine, turbine, and power transmission equipment grew by 30% in the three months ending July 2012 compared to the same period one year earlier, while motor vehicles and parts improved by 26% in the same time frame.

The largest drop came in domestic electronic computers, which declined by 13%.

Meckstroth reported that 10 industries are in the accelerating growth (recovery) phase of the business cycle; 11 are in the decelerating growth (expansion) phase; 4 are in the accelerating decline (either early recession or mid-recession) phase; and 2 are in the decelerating decline (late recession or very mild recession) phase of the cycle.

The current analysis takes a first look at a longer-term horizon and anticipates 3.3% overall manufacturing growth in 2014.

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