Manufacturing’s slowing, solid growth continues

By Plant Engineering Staff May 18, 2006

Growth in the U.S. economy is expected to decelerate in the next two years, but the manufacturing sector should continue its solid climb through 2006 before experiencing some retrenchment in 2007, according to a new report.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts inflation-adjusted gross domestic product (GDP) growth will be 3.3% in 2006 and 2.7% in 2007, nearly consistent with the February 2006 projections of 3.2% and 2.8%, respectively. Overall U.S. GDP growth in 2005 was 3.5%.

“Factors that would lower the forecast, such as higher than expected energy prices and long- term interest rates, have been offset by stronger international growth and a lower than expected value of the dollar,” said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist.

Growth in manufacturing activity will likely outpace the general economy in 2006 but trail it in 2007. The Alliance expects manufacturing industrial production to increase a robust 4.6% in 2006, before returning to a more modest 2.5% increase in 2007. Manufacturing activity increased 3.9% in 2005. Inflation-adjusted spending for computers and electronic products is forecast to rise 17.1% in 2006 and 12.0% in 2007. Production in non-high-tech industries will grow 3.5% this year and 1.4% in 2007.

“Manufacturing is benefiting from faster economic growth abroad and continued moderately strong domestic demand,” Meckstroth said. “The stronger international activity, coupled with a slightly lower dollar, helps increase exports and tightens up product availability. Manufacturing capacity utilization is rising, vendor deliveries are slower, and commodity prices continue to skyrocket.”

Real investment in equipment and software should increase 10.1% in 2006 and 5.5% in 2007, growing several times faster than the general economy. The largest gains in spending will come in the high-tech sectors. Inflation-adjusted expenditures for information processing equipment are expected to rise 11.5% in 2006 and 9.7% in 2007. Spending for transportation equipment, however, will be volatile over the next two years, with Alliance predictions of 11.7% growth in 2006, but a decrease of 1.9% in 2007. The forecast calls for industrial equipment spending to increase 7.7% and 3.2%, respectively. Spending on non-residential structures is forecast to rise 7.0% this year and 7.5% in 2007.