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Report: Economy Headed For Significant Slowdown

Manufacturers Alliance/MAPI says risk of a recession has climbed to at least 50 percent; manufacturing production growth to slow from 4.7 percent to 1.9 percent in 2007.

ARLINGTON, Va. β€” The housing collapse and credit crunch, rising oil prices, slowing employment growth and lack of consumer confidence indicate a significant economic slowdown in the near future, according to a report by the Manufacturers Alliance/MAPI.
 
The Quarterly Economic Forecast forecasts inflation-adjusted GDP to slow to 2.1 percent in 2007 and to 1.3 percent in 2008.
 
β€œThe U.S. economy in the past has experienced a recession from fewer shocks than we are now experiencing,” said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist. β€œBy itself the housing collapse would probably not cause a recession, but when combined with a credit crunch, falling housing prices, record oil prices, falling corporate profits, low consumer confidence and decelerating employment growth, the risk of recession has climbed to at least 50 percent.”
 
Manufacturing production growth expected to decline from 4.7 percent growth in 2006 to 1.9 percent in 2007 and remain flat in 2008. Production in non-high-tech industries is expected to grow only 0.9 percent this year and decline by 1.2 percent in 2008.
 
However, inflation-adjusted spending for computers and electronic products is expected to rise 11.5 percent in 2007 and 10 percent in 2008. Inflation adjusted expenditures for information processing equipment are expected to rise 7.7 percent in 2007 and 5.3 percent in 2008.
 
Spending on nonresidential structures is expected to rise 12.1 percent in 2007, but only 0.8 percent in 2008. Industrial equipment expenditures forecast to increase 2.5 percent before declining by 3.4 percent. Spending on transportation equipment is expected to decline 10.3 percent in 2007, followed by another 2 percent in 2008. Aerospace equipment forecast to grow by 11.8 percent in 2007 and 12.1 percent in 2008.
 
Export growth should outpace import growth by a wide margin by the end of 2008. Exports should rise 7.7 percent in 2007 and 8.7 percent in 2008, while imports are expected to increase 2.1 percent in 2007 and 1.5 percent in 2008.
 
β€œIf the U.S. economy is able to avoid a recession next year, it will be due primarily to the declining value of the dollar and strong global growth, which show up as substantial growth contribution from net exports,” Meckstroth said. β€œIn addition, government spending growth should contribute positive momentum.”
 
The unemployment rate is expected to be 4.6 percent in 2007, rising to 5.3 percent in 2008.
 
To view the economic forecast tables, click here.
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