The Manufacturers Alliance/MAPI is out with its latest quarterly economic forecast, and it appears manufacturing production is likely to cool next year.
MAPI sees a noticeable slowdown in production growth, from the 4.8 percent growth this year to 2.6 percent next. The group does see industrial production increasing to 3.4 percent in 2008, in-line with an overall improvement in U.S. gross domestic product.
“The mid-cycle correction, or a ‘soft landing,’ is playing out about the way we expected,” said Daniel Meckstroth, MAPI's chief economist. “Big ticket items, particularly housing and motor vehicles, and business inventory swings play a large part in the current deceleration of economic activity.”
Inflation-adjusted spending for computers and electronic products is forecast to rise 12.5 percent in 2007 and 10.6 percent in 2007, the group said, while production in non-high-tech industries will grow a far more modest 1.7 percent next year and 2.5 percent in 2008.
“High-tech industrial production (as defined by the Federal Reserve) is only 5 percent of manufacturing value added, but large price declines and quality upgrades in the industry lead to very strong growth in physical volume,” Meckstroth said. “Non-high-tech production growth is a better reflection of the pace of manufacturing activity.”
Spending on non-residential structures is forecast to rise a robust 9.1 percent in 2007 but remain flat in 2008, and MAPI sees a more optimistic outlook for spending for transportation equipment, which is likely to show a 5.0 percent gain in 2007 and 7.8 percent growth in 2008.
Inflation-adjusted exports should rise 8.6 percent in 2007 and 9.7 percent in 2008, while imports are expected to increase 4.2 percent in 2007 and 5.2 percent the following year.
Along with its quarterly report, MAPI has offered up its second annual five-year forecast. Average annual GDP growth from 2006-2011 is expected to be 3.1 percent, including a brief deceleration (2.2 percent) expected in 2010.
Meckstroth said the immediate risk to the short-term forecast is the current housing price declines. Economists estimate that a change in housing wealth has only a small impact on current overall consumer spending. If U.S. consumers tighten their purse strings, a recession would be more likely than a soft landing.
Over-tightening by the Federal Reserve, energy supply disruptions, and the excessive dependency in the United States on foreign savings are other risks.