ARLINGTON, Va. -- The U.S. economy is in the midst of a severe recession and will face serious and unrelenting challenges through 2009, according to the Manufacturers Alliance/MAPI Quarterly Economic Forecast report.
“The financial crisis worsened dramatically in the last three months and consumers suffered a major decline in wealth from declining housing prices and the plummeting stock market,” said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. “High inflation, lower wage increases, and a shrinking number of jobs made individuals poorer and looking for ways to build some savings to weather hard times. A consumer–led decline aggravated by a credit crunch is a recipe for trouble.”
Manufacturing production growth will sink into negative territory in 2008, declining 1.4 percent following an already low 1.7 percent growth in 2007. It is likely to fall further in 2009, declining by a significant 4.2 percent. The previous quarterly MAPI report had forecast production to decline by 0.5 percent in 2008 and to grow by 1.6 percent next year.
Production in non-high-tech industries is anticipated to decline 2.9 percent this year and fall an additional 6.3 percent in 2009. There is, however, continued growth in the computers and electronics products sector. High-tech industrial production is expected to rise 14.4 percent in 2008 and 6.6 percent in 2009, although the latter is down from 14.7 percent in the August MAPI report.
The GDP account for inflation-adjusted investment in equipment and software should decrease by 1.5 percent in 2008 and further decrease by 9.2 percent in 2009. Even previously strong capital equipment spending in high-tech sectors will feel the pinch. Inflation-adjusted expenditures for information processing equipment are expected to rise 6.8 percent in 2008 before declining 4.6 percent in 2009, down from 8.1 percent and 5.7 percent growth, respectively, in the August report.
In addition, the forecast calls for industrial equipment expenditures to decline by 4.1 percent this year and to further decline by 15.4 percent in 2009. The latter figure compares with a previously anticipated 7.1 percent loss in 2009 in the August report. The outlook for spending on transportation equipment calls for a 26.4 percent decline in 2008 followed by a 20.2 percent drop in 2009.
Exports and imports, however, may offer some minimal relief in the soft economic environment. Export growth should continue to outpace that of imports by a wide margin. Inflation-adjusted exports should rise 8.4 percent in 2008 and by 0.9 percent in 2009, while imports are expected to decline by 2.4 percent this year and to further decrease by 4.6 percent next year.
The report, however, does include some semblance of good news. The price per barrel of imported crude oil is expected to average $94.80 in 2008 before falling to $54.50 per barrel in 2009. This compares favorably to the estimates of $105.80 and $104.80, respectively, in the August outlook.
To view the economic forecast tables click here.