The 2011 GDP forecast by the Manufacturers Alliance/MAPI has been downgraded from 2.7% to 1.6% as a host of concerns combine to temper the outlook, the group said on August 25.
"The economy was in much worse shape than expected (in the first half of 2011) and the 2008-2009 recession was worse than previously estimated," said Daniel J. Meckstroth, chief economist, Manufacturers Alliance/MAPI. "The U.S. Bureau of Economic Analysis over-estimated first quarter 2011 growth as the then-current data indicated that first half GDP growth would come in at just under 2%. Nevertheless, after the July revision to the economic statistics, we saw that the economy actually grew less than half that rate, only 0.8%. Unfortunately, there are relatively few economic drivers that are likely to accelerate over the rest of the year."
Manufacturing production will outpace the overall economy and is expected to show 4.1% growth in 2011 and 3.2% growth in 2012. Both figures have been adjusted downward from MAPIs May forecast of 6.2% and 4.2%, respectively.
Manufacturing is expected to see a hiring increase with the sector forecast to add 270,000 jobs in 2011 and 273,000 jobs in 2012.
Luckily there are some bright spots, but a high level of uncertainty looms. "Second half 2011 motor vehicle production schedules have been raised by the automakers," Meckstroth said. "Also, the summer heat wave increased electricity production, the decline in food and gas prices boosts inflation-adjusted income, there is ongoing and relatively strong export growth, and businesses are able to expense 100 percent of equipment purchases.
"On the downside, however, overall job growth will be disappointing, there has been only a tepid rebound in housing, we have already seen a stock market correction, and there could be further reverberations of the U.S. rating downgrade by Standard & Poor's," he added. "In addition, the political gridlock in solving the long term federal budget deficit lowers confidence in the U.S. State and local governments cannot run operating deficits and are in an austerity mode."
Production in non-high-tech industries is expected to increase by 4.1% in 2011 and by 3% in 2012. High-tech manufacturing production, which accounts for approximately 10% of all manufacturing, is anticipated to improve at a higher rate, with 8.5% growth in 2011 followed by 10.9% growth in 2012.
The forecast for investment in equipment and software is for 8.7% growth in 2011 and 7.7% growth in 2012. Capital equipment spending in high-tech sectors will also rise. Inflation-adjusted expenditures for information processing equipment are anticipated to increase by 7.7 percent in both 2011 and 2012.
MAPI expects industrial equipment expenditures to advance by 6.9% in 2011 and by 7.5% in 2012. The outlook for spending on transportation equipment is for 18.3% growth in 2011 and 15.4% growth in 2012. Spending on non-residential structures will improve by 2.9% in 2011 before decelerating to 1.1% growth in 2012.
Exports and imports will both see gains. Inflation-adjusted exports are anticipated to improve by 8.1% in 2011 and by 7.7% in 2012. Imports are expected to grow by 5.1% in 2011 and by 3.1% in 2012. MAPI forecasts overall unemployment to remain high, averaging 9.1% in 2011 and 9% in 2012.