Report: Manufacturing Production Will Outpace the Overall Economy

Manufacturing production will outpace the overall economy and is expected to show growth of 4.3% in 2011, 3.4% in 2012 and 3.8% in 2013, according to a new report.

The 2011 and 2012 figures, contained in the Manufacturers Alliance/MAPI Quarterly Economic Forecast, have been revised upward from the organization's August forecast of 4.1% and 3.2%, respectively.

Overall, the Manufacturers Alliance/MAPI sees increased exports and investment in business equipment as drivers for economic growth over the next five years, "as the U.S. economy rebalances away from excessive reliance on debt-based consumer spending," the report says.

The organization predicts that the inflation-adjusted gross domestic product (GDP) will expand by 1.8% in 2011, by 2.1% in 2012 and by 2.4% in 2013.

The 2011 forecast represents a slight upgrade over the previously estimated 1.6% growth, while the 2012 forecast is on par with 2.1% growth anticipated in MAPI's August 2011 quarterly report.

MAPI's November report, which traditionally provides a five-year forecast, predicts that the GDP will average 2.9% annual growth from 2012 to 2016.

"Recently, the U.S. economy has performed a bit stronger than we thought, yet there is no indication of significant improvement. So we kept the growth rates for 2011 and 2012 in the same range," said Daniel Meckstroth, MAPI chief economist.

"Consumer spending is restrained by sluggish job growth and minimal wage increases, and combined with the impaired housing market, we do not foresee a return to debt-based growth. Instead, drivers will be increased investment in business equipment and trade. Also, we are seeing some modest growth in non-residential construction, suggesting that the sector's recession is bottoming out."

The latest MAPI report predicts a net increase in manufacturing hiring, with the sector forecast to add 230,000 jobs in 2011, 170,000 in 2012 and 140,000 in 2013.

Still, MAPI forecasts overall unemployment to remain high, averaging 9.1% in 2011, 9% in 2012 and 8.8% in 2013.

Despite a somewhat optimistic outlook for manufacturing, the usual macroeconomic concerns loom over the horizon.

"The risk of another recession is uncomfortably high -- we put the probability at 40% for 2011," Meckstroth said. "The main risk is that the European sovereign-debt crisis may cascade from European banks to the U.S. banking system and interfere with interbank lending and, ultimately, credit availability.

"Another concern is that job growth will stop. U.S. economic growth is already at a 'stall speed' of 2% or less, and if we had a major shock it could precipitate a major crisis.

"Additionally, there is already a shift from fiscal government stimulus to austerity that we expect to last the next five years or more, as U.S. politicians attempt to get control of our unwieldy public debt."

Among the highlights of the MAPI forecast:

• High-tech manufacturing production, which accounts for approximately 10% of all manufacturing, is anticipated to improve at a higher rate, with growth of 7.6% in 2011, 5.8% in 2012 and 10.4% in 2013.

• The forecast for inflation-adjusted investment in equipment and software is for growth of 10.7% in 2011, 7.9% in 2012 and 7.7% in 2013. Capital-equipment spending in high-tech sectors also is expected to rise.

• Inflation-adjusted expenditures for information-processing equipment are anticipated to increase by 6.5% in 2011, by 7.8% in 2012 and by 6.9% in 2013.

• MAPI expects industrial-equipment expenditures to advance by 12.1% in 2011, by 10% in 2012 and by 5.2% in 2013.

• The outlook for spending on transportation equipment is for growth of 26.1% in 2011, 12.7% in 2012 and 12.3% in 2013.

• Exports and imports both will see gains. Inflation-adjusted exports are anticipated to improve by 6.7% in 2011, by 4.8% in 2012 and by 7.1% in 2013.

• MAPI expects the price per barrel of imported crude oil to average $100.30 per barrel in 2011, $99.10 per barrel in 2012 and $101 in 2013.