Be careful when watching those readings on the health of the manufacturing industry – they’re likely to give you whiplash.

One day the government says orders for durable goods are plummeting , the next the ISM is offering data that suggest the U.S. manufacturing industry is in solid shape. And there’s a slew of conflicting numbers in between.

Well, the Manufacturers Alliance/MAPI has come out with its latest Industrial Outlook, and score one for the crowd calling for a manufacturing slowdown.

Daniel Meckstroth, chief economist at MAPI, is projecting a pronounced slowdown in manufacturing growth this year, forecasting a deceleration from 4.7 percent last year to 2.5 percent this year. He expects manufacturing growth excluding computers and electronics products to exhibit even less growth, from 3.3 percent in 2006 to just 1.2 percent in 2007.

Of the 24 industries MAPI keeps tabs on, 14 are expected to show growth. One industry will be flat and nine will decline: housing, motor vehicles and parts; household appliances; electric lighting equipment; iron and steel products; paper; construction machinery; ventilation, heating, air conditioning, and commercial refrigeration equipment; and engine, turbine and power transmission equipment. Alumina and aluminum is expected to show no growth.

Industrial Outlook Forecast, 2007-2008.  To view chart larger, click here.

Housing activity collapsed in the fourth quarter and Meckstroth noted that that falloff depressed other industries like household appliances, lighting equipment, HVAC equipment, wood products, paint, and furniture markets.

“Although housing prices have not decline on a national basis in any full year since the end of World War II, we predict that new and existing home prices will decline for 2007,” Meckstroth said.

While the automotive sector is not in a freefall, it will continue to drift lower, and motor vehicle and parts production will oscillate around a small declining production trend this year, he said. While rising wages, employment growth and, until recently, lower gas prices may have put a floor under the recent downward trend son auto sales, the problem is that the aggressive sales incentives used in the industry can’t be sustained, and there is no pent-up demand for autos.

On the trucking side, he’s looking for a pullback of 22 percent in heavy-duty production this year.

There are some bright spots. Meckstroth noted that capital equipment production continues to pave the way for the manufacturing sector’s growth. Five of the seven production equipment categories showed not just growth but strong growth in the fourth quarter, which is a favorable sign of the durability of the manufacturing expansion.

“Although manufacturing activity has declined recently, factory operating rates remain close to 80 percent, which was the point triggering capital investment in the past,” he said. “The conditions for investment in factory machinery continue to remain favorable. Non-petroleum manufacturing corporate profits are up 18 percent in the first nine months of 2006 versus the previous year, cash flow continues to post strong growth, and banks have easy credit terms.”

Industrial Sector by Phase of Cycle.  To view diagram larger, click here.

The manufacturing industry has been bombarded of late by a host of economic reports that have offered disparate views about where the industry stands. Durable good orders fell by nearly 8 percent in January, new orders fell by the largest amount in about six years, and fourth-quarter manufacturing productivity grew by the smallest amount in three years. On the other hand, the Institute for Supply Management said its February PMI index bounced back to 52.3, suggesting ongoing growth. What’s more, readings on new orders, employment and backlogs all improved.

Meanwhile, the recent gyrations in the global equity markets served for some as an invitation to call the beginning of the end of demand from China and other emerging markets that are so vital to U.S. manufacturers. That’s wildly premature, of course, but it is fair to say the industry doesn’t have much room for error. The next couple of months are likely to be critical in determining how extensive a manufacturing slowdown may be.