Two reports offer more gloom, doom for manufacturing growth
Recession, consumer spending drop called 'a recipe for trouble'
Two reports this week continue to paint a gloomy picture for American manufacturing and its place in a global recession.
The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted GDP growth decelerated to 1.4% in 2008 and will decline 1.0% in 2009. The 2009 GDP forecast is down from 1.3% growth projected in MAPI’s previous quarterly report 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 consumer—led decline aggravated by a credit crunch is a recipe for trouble.”
According to the November 2008 Precision Metalforming Association (PMA) Business Conditions Report, metalforming companies expect business conditions to continue to deteriorate during the next three months. Conducted monthly, the report is an economic indicator for manufacturing, sampling 157 metalforming companies in the United States and Canada.
When asked what the trend in general economic activity will be during the next three months, metalformers anticipate worsening conditions. Seventy percent of participants reported that activity will decline (up from 67% in October).
The MAPI report shows continuing weakness in the overall manufacturing market. 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 previous quarterly MAPI report had forecast production to decline by 0.5% in 2008 and to grow by 1.6% next year.
Production in non-high-tech industries is anticipated to decline 2.9% this year and fall an additional 6.3% in 2009. There is, however, 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. Inflation-adjusted 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.
r a 26.4% decline in 2008 followed by a 20.2% drop in 2009.
Exports and imports, however, may offer some minimal relief in the soft economic environment. Export growth should continue to outpace that of imports by a wide margin. Inflation-adjusted 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 6.0% unemployment rate in 2009.
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.
Included in MAPI’s 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.
To view the economic forecast tables click here .
Metalforming companies also expect incoming orders to continue to drop over the next three months. Sixty-seven percent of companies anticipate a decrease in orders (up from 54% in October), 24% expect no change (down from 34% the previous month) and only nine% forecast an increase in orders (compared to 12% in October).
Current average daily shipping levels dropped substantially in November. Fifty-nine% of participants report that shipping levels are below levels of three months ago (up drastically from 38% in October), 31% report no change (down from 45% last month) and 10% report that shipping levels are above levels of three months ago (down from 17% in October).
The monthly Business Conditions Report has been conducted by PMA since 1979. Full report results are available at www.pma.org/about/stats/BCreport .