NAM: Slowing manufacturing growth may accelerate later in 2007

The May 2007 economic outlook from the National Association of Manufacturers pointed to an economy currently stuck in low gear, that should accelerate slightly in the second half of 2007. “An improved trade picture and positive consumer spending will continue to be offset by a downturn in housing, pullbacks in inventories and sluggish business investment, notably in industrial equipment,” said David Huether, the NAM’s chief economist.

The report says the economy will grow by 2.3% in the second quarter before accelerating to 2.7 and 3.2% growth in the third and fourth quarters, respectively. Overall, the economy is forecast to grow by 2.4%. This year, manufacturing output will grow by a similar 2.2%, its slowest pace since 2003.

“With the dollar at its lowest level since mid-1997 and solid economic growth taking place abroad, exports should continue to rise,” Huether said. In 2007, exports are expected to increase by 5.4% and imports by just 3.3%, allowing the trade deficit to decrease by $61 billion this year.

“However, when new houses aren’t going up very quickly, neither is the economy,” he added. “The ongoing downturn in housing will significantly impact some manufacturing sectors, including wood products, non-metallic minerals and furniture and textile products.”

The impact of housing will be felt on the job market, where 100,000 jobs in manufacturing will be lost this year, according to the report. “The job losses in manufacturing are part of the trickle down impact of the housing decline,” Huether said. “The majority of the losses will be concentrated in transportation products and other durable sectors closely connected with construction.”