Manufacturing Braces for More Difficult Times

Nov. 18, 2008
MAPI study predicts 4.2% decline in 2009.

The U.S. economy is in the midst of a severe recession and will face serious and unrelenting challenges through 2009, according to a new report by The Manufacturers Alliance/MAPI. The industry group predicts that inflation-adjusted GDP growth decelerated to 1.4% in 2008 and will decline 1% in 2009. The 2009 GDP forecast is down from 1.3% growth projected in August.

"The financial crisis worsened dramatically in the last three months and consumers suffered a major decline in wealth from declining housing prices and the plummeting stock market," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. "High inflation, lower wage increases, and a shrinking number of jobs made individuals poorer and looking for ways to build some savings to weather hard times. A consumerled decline aggravated by a credit crunch is a recipe for trouble."

Manufacturing production growth will sink into negative territory in 2008, declining 1.4% following an already low 1.7% growth in 2007. It is likely to fall further in 2009, declining by a significant 4.2%.

The report, however, does include some semblance of good news. The price per barrel of imported crude oil is expected to average $94.80 in 2008 before falling to $54.50 per barrel in 2009. This compares favorably to the estimates of $105.80 and $104.80, respectively, in the August outlook.

Production in non-high-tech industries is anticipated to decline 2.9% this year and fall an additional 6.3% in 2009. The study does show continued growth in the computers and electronics products sector. High-tech industrial production is expected to rise 14.4% in 2008 and 6.6% in 2009, although the latter is down from 14.7% in the August MAPI report.

The GDP account for inflation-adjusted investment in equipment and software should decrease by 1.5% in 2008 and further decrease by 9.2% in 2009. Even previously strong capital equipment spending in high-tech sectors will feel the pinch with expenditures for information processing equipment are expected to rise 6.8% in 2008 before declining 4.6% in 2009, down from 8.1% and 5.7% growth, respectively, in the August report.

In addition, the forecast calls for industrial equipment expenditures to decline by 4.1% this year and to further decline by 15.4% in 2009. The latter figure compares with a previously anticipated 7.1% loss in 2009 in the August report. The outlook for spending on transportation equipment calls for a 26.4% decline in 2008 followed by a 20.2% drop in 2009.

Spending on non-residential structures is also expected to retrench over the next two years. While spending in this area increased by 12.9% in 2007, it is forecast to decelerate marginally to 11.3% growth in 2008 and then decline by a precipitous 14.2% in 2009.

Export growth should continue to outpace that of imports by a wide margin. Exports should rise 8.4% in 2008 and by 0.9% in 2009, while imports are expected to decline by 2.4% this year and to further decrease by 4.6% next year.

The forecast envisions the unemployment rate to average 5.7% in 2008 and 7.7% in 2009. The previous report envisioned a 6% unemployment rate in 2009.

Included in MAPIs November 2008 economic outlook is the annual long-term forecast. Average annual GDP growth from 2008-2013 is expected to be 2.2%, with only 2009 showing negative growth for the entire year.

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