Posted September 13, 2010

MAPI survey: Recovery to continue

The pace of recovery in the general economy has clearly slowed, but the deceleration is less visible in the manufacturing sector, according to the Manufacturers Alliance/MAPI U.S. Industrial Outlook.

"Despite less consumer spending growth in the second quarter, there was nevertheless some employment growth and modest wage increases. Also, the prolonged downturn and sluggish recovery have created pent-up demand for some durable goods, including sales of motor vehicles and appliances," said Daniel J. Meckstroth, Ph.D., chief economist for the Manufacturers Alliance/MAPI and author of the analysis. "In addition, the inventory swing is greatest in manufacturing; exports are predominantly manufactured and benefitted from the fast global trade bounce back; and business investment in equipment rebounded much faster than consumer spending, thus making the pace of the industrial recovery stronger than that in the general economy."

Manufacturing industrial production, measured on a quarter-to-quarter basis, grew at an 8 percent annual rate in the three months ending July 2010, after expanding at a 5 percent annual rate in the three months ending April 2010. MAPI predicts the superior growth trend for manufacturing will continue, but decelerate, increasing 6 percent overall in 2010 and advancing 5 percent in 2011. At this pace it will be late 2012 before manufacturing production exceeds the December 2007 pre-recession level.

Production in non-high-tech manufacturing expanded at an 8 percent annual rate during the May-July 2010 period. According to the MAPI report, non-high-tech manufacturing production is expected to increase approximately 5 percent in 2010 and 4 percent in 2011. High-tech industrial production rose at a 10 percent annual rate in the May-July 2010 time frame. MAPI anticipates that it will post strong 15 percent growth in 2010 and 13 percent growth in 2011.

There was an upward trend in the May-July 2010 figures for the various components of the manufacturing economy. Twenty-two of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, three more than reported in the previous three months ending in April 2010. Iron and steel production grew by 68 percent in the three months ending in July 2010 compared to the previous three months, while industrial machinery production improved by 58 percent in the same window.

The largest drop came in private nonresidential construction, which declined 21 percent, while public construction and aerospace products and parts each experienced a 4 percent decline.

Meckstroth reports that 17 industries are in the accelerating growth (recovery) phase of the business cycle; five industries are in the decelerating growth (expansion) phase; three industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and two are in the decelerating decline (late recession or very mild recession) phase of the cycle.

The report also offers economic forecasts for 24 of the 27 industries. MAPI forecasts that 18 of the 24 industries will show gains in 2010, led by iron and steel production with expected 56 percent growth and industrial machinery with 36 percent growth. The recovery should continue in 2011 with growth likely in 22 of 24 industries, including seven industries which are predicted to grow at double-digit rates, led by housing starts at 40 percent—albeit from excessively low levels—and engines, turbines and power transmission equipment at 25 percent.