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Economy, Manufacturing Poised For Slow Growth In 2007

Residential housing downturn still a drag on overall economy, according to National Association of Manufacturers' 2007 Economic Outlook.

During the second and third quarters of 2006, economic growth in the U.S. slowed to a "below-potential" 2.3 percent pace, after the down, then up seesawing of the economy in late 2005 and early 2006 due to the aftermath of the 2005 hurricane season, according to the National Association of Manufacturers' (NAM) 2007 Economic Outlook released Tuesday.

“After slowing to a ‘below-potential’ pace in recent quarters, the economy will continue decelerating toward a ‘soft landing’ in the coming year,” commented David Huether, chief economist for the NAM. “Residential housing continues to be a drag on the economy, though outside of this sector the economy has shown solid growth."

Huether projected that the manufacturing sector will grow by 2.8 percent in 2007, slightly lower than the 2.9 percent overall growth in the GDP, and then by 2.7 percent in 2008.

Over the past four quarters, manufacturing output has risen by 6.3 percent, the fastest pace in 8 1/2  years, NAM's Economic Outlook indicates.

But this is probably evidence of a cyclical peak in the growth of the manufacturing industry, and in the future, manufacturing production is likely to moderate along with the rest of the overall economy, according to the report.

“Continuing improvement in trade, with exports on the rise, and growth in business investment will allow industrial output to grow in concert with the overall economy,” Huether said.

Huether predicts that the downturn in housing will continue to drag down the economy during the first half of 2007, and this will continue to negatively effect specific manufacturing sectors, wood and textile products, and nonmetallic minerals.

Business investment spending, helped by soaring profits and corporate cash flow, increased by 8.3 percent, the fastest fourth-quarter pace in the current expansion. As this spending starts to decline, business investment will increase at a much slower pace of 6.4 percent in 2007, and will be even slower in 2008 at 4.1 percent, NAM's Economic Outlook shows. 

In the labor market, 1.3 million new jobs will be created in 2007, although this is down from the 1.7 million jobs in 2006. Manufacturing employment will decrease slightly to 14.1 million in 2007 from 14.2 million in 2006.

To view NAM’s Economic Forecast please click here.