The U.S. manufacturing sector performed well in early 2006 but has entered a soft stretch in late 2006 which will continue into early 2007. The slowdown, however, should be relatively short-lived before recovering in 2008, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook (ER-621e), a report that analyzes 27 major industries.
In a sign of manufacturing’s sustainability, third-quarter 2006 figures show that 22 of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, indicating continued broad-based growth in the industrial sector.
Top industry performers in the third quarter, recording year-over-year double-digit growth, were mining and oil and gas field machinery (42 percent); communications equipment (27 percent); aerospace products and parts (25 percent); industrial machinery (24 percent); construction machinery (22 percent); oil and gas well drilling (16 percent); engine, turbine, and power equipment (15 percent); iron and steel products (14 percent); private non-residential construction (14 percent); semiconductors (13 percent); navigational, measuring, electromedical, and control instruments (13 percent); and electrical equipment (13 percent). Consumer-oriented industries remain the weakest industrial sector. The plummeting of housing activity by 19 percent in the third quarter is sharply slowing other industries such as household appliances, wood products, paint, and furniture markets.
Daniel J. Meckstroth, Ph.D., Manufacturers Alliance/MAPI chief economist and author of the analysis, writes that 12 industries are in the accelerating growth (recovery) phase of the business cycle; nine are in the decelerating growth (expansion) phase; four industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and two are in the decelerating decline (late recession or very mild recession) phase of the cycle.
“The industrial sector is undergoing a mid-cycle correction, not unlike the correction that occurred in 1995 during the 1990s cycle,” Meckstroth said.
The report also offers economic forecasts for 24 of the 27 industries for 2007 and 2008. Mining and oil and gas field machinery, at 11 percent, is the lone industry in the MAPI forecast series expected to enjoy double-digit growth in 2007. In 2008, computer equipment and aerospace and parts are both forecast to rise 12 percent from 8 percent and 9 percent, respectively, in 2007. The alliance does not offer a forecast for semiconductor shipments, but the Semiconductor Industry Association envisions 10 percent growth in 2007 and 11 percent growth in 2008.
Two industries in the equipment sector are forecast to have negative change both in 2007 and in 2008. Construction machinery is expected to decline by 1 percent in 2007 and by 5 percent in 2008, while engine, turbine, and power equipment is predicted to fall by 2 percent in 2007 and by 3 percent in 2008.
Overall manufacturing industrial production should grow 4.8 percent in 2006. MAPI forecasts industrial production growth will incur significant slowing in 2007, however, decelerating to 2.6 percent growth before rebounding to 3.4 percent growth in 2008.
“There is pronounced slowing in the consumer side of the economy, production adjustments in some capital equipment industries (particularly in equipment with diesel engines), and an inventory correction is in the works,” Meckstroth explained.
Members may access the report online by logging on to the MAPI Web site (www.mapi.net). Non-members may order the publication for $50 by calling 703-647-5139 or e-mailing mpearson@mapi.net.
