U.S. Industrial Outlook: Manufacturing to Accelerate in Second Half of 2015

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While the forecast for overall manufacturing production growth for 2015 is lower than previously expected, key drivers will allow for solid fourth quarter advancement, according to the MAPI Foundation's U.S. Industrial Outlook, a quarterly report that analyzes 27 major industries. The MAPI Foundation is the research affiliate of the Manufacturers Alliance for Productivity and Innovation.

Manufacturing industrial production rose at a 1.2% annual rate in the second quarter of 2015, a meager recovery, but nonetheless an increase, from the weather depressed 0.7% decline in the first quarter.

The MAPI Foundation forecasts manufacturing production growth of 2.1% in 2015, 3.4% in 2016, and 3.1% in 2017. The 2015 forecast is a decrease from 2.5%, the 2016 forecast is a decline from 4.0% and the 3.1% in 2017 in unchanged from the June 2015 report. The MAPI Foundation anticipates overall GDP will advance by 2.3% in 2015, 2.9% in 2016, and 2.7% in 2017.

"We anticipate manufacturing production will increase at a 2.1% annual rate in the third quarter and by a 4.6% annual rate in the fourth quarter," said MAPI Foundation Chief Economist Daniel J. Meckstroth, Ph.D. "The drivers include strong employment growth which in turn creates income growth and a solid base of consumer spending. Also, easy credit availability propels big ticket spending for motor vehicles, residential housing, and nonresidential construction."

There remain, however, headwinds.

"Negative factors which have been holding back growth such as the decline in investment in oil and natural gas drilling and the appreciation of the dollar will worsen the inflation-adjusted trade deficit," he added.

The report offers economic forecasts for 23 of the 27 industries. The MAPI Foundation anticipates that 19 will show gains in 2015, 3 will decline, and 1—paper production—will remain flat. The top industry performers will be housing starts and private nonresidential construction, each with anticipated physical growth of 11%.

The outlook is improved in 2016, with growth likely in 22 industries, led by housing starts at 18%. Mining and oil and gas field machinery is expected to continue its descent, by 14%, as low oil prices will continue to discourage most shale field drilling and, commensurately, drilling investment.

According to the report, non-high-tech manufacturing production (which accounts for 95% of the total) is anticipated to increase 2.3% in 2015, 3.3% in 2016, and 2.9% in 2017. High-tech industrial production (computers and electronic products) is projected to expand by 1.5% in 2015, 6.1% in 2016, and 5.9% in 2017.

During the report period (May through July 2015 for most sectors), 17 of the 27 industries Meckstroth monitors had inflation-adjusted new orders or production at or above the level of one year prior, 8 declined, and 2 were flat. The 17 industries were three fewer than in the previous report.

Meckstroth reported that 5 industries are in the accelerating growth (recovery) phase of the business cycle, 14 are in the decelerating growth (expansion) phase, 5 are in the accelerating decline (either early recession or mid-recession) phase, and 3 are in the decelerating decline (late recession or very mild recession) phase.



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