MAPI Report Tempers Expectations For U.S. Manufacturing Sector

The latest quarterly forecast is slightly more pessimistic about the nation's manufacturing sector than three months ago.

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The latest quarterly forecast from the MAPI Foundation is slightly more pessimistic about the nation's manufacturing sector than three months ago.

The research arm of the Manufacturers Alliance for Productivity and Innovation expects manufacturing production to grow by 2.1 percent this year and 3.4 percent in 2016, down from 2.5 percent and 4.0 percent, respectively, in its May forecast.

Manufacturing classified as non-high-tech, which comprises the bulk of the industry, should increase by 2.3 percent this year and 3.3 percent next year, while high-tech production is expected to grow by just 1.5 percent this year but jump more than 6 percent in 2016.

Read more: Discover a major growth driver for manufacturing firms.

The sector is expected to add 124,000 jobs this year, which was well behind both the May forecast and the 210,000 jobs added last year. The MAPI Foundation revised its employment estimates upward for next year, however, from 33,000 added jobs to 94,000.

MAPI analysts said that manufacturing firms are generally hiring more workers to keep up with demand, but that they are avoiding large investments to increase productivity.

Investment in equipment should grow by just more than 3 percent this year and jump by nearly 8 percent next year — although that number also includes a steep deceleration in transportation equipment purchases over that span.

MAPI Foundation economist Daniel Meckstroth said that manufacturing is still growing despite a sluggish global economy, and that housing and autos are pacing the sector due to nationwide job growth, reduced unemployment and low inflation and interest rates.

"The economy has fully recovered, but it has been an abnormally slow expansion after a sluggish recovery," Meckstroth said. "Consumers and businesses are risk averse, and without the credit hype, spending will have to be commensurate with income growth."

The continued strength of the dollar relatively to other currencies should also continue to be a problem for U.S. industry. Exports are expected to grow by 1.7 percent this year while imports climb nearly 6 percent.

Overall, GDP, when adjusted for inflation, should expand 2.3 percent this year and 2.9 percent next year. Both were down 0.1 percent from the May estimates.

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