Recovery weakens amid softer economic data, according to the MAPI Quarterly Economic Forecast

Source: MAPI

Sep 17, 2010

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted gross domestic product (GDP) will expand by 2.9% in 2010, followed by 2.6% growth in 2011. The forecast is down slightly from the previously estimated 3.3% and 2.9%, respectively, in the May 2010 quarterly report.

“There is a somewhat bleaker outlook amid weaker economic data and it clearly indicates a slow growth mode,” said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. “For instance, the numbers for June retail trade, inventories, and foreign trade have all come in weaker than the Bureau of Economic Analysis had estimated in the preliminary estimate of second quarter GDP growth. The homeowners’ tax credit has expired. Consumers are not spending as much. They are saving more and repaying debt, which is good for the long run but not the near term. The inventory swing is over and the benefits of the stimulus have basically run their course.”

There remain, however, positive economic signs, and the manufacturing sector should continue to hold its own.

“Expenditures are rapidly growing for business equipment, as are exports,” Meckstroth added. “Manufacturing will grow faster than the general economy as it relies less on consumer spending while disproportionately benefitting from strong demand for business equipment, exports, and basic materials.”

Manufacturing production growth is expected to show 5.7% growth in 2010 and an additional 4.7% growth in 2011.

Production in non-high-tech industries is expected to increase by 5.1% in 2010 and by 4.3% in 2011. High-tech manufacturing production is anticipated to improve at a much higher rate, with impressive 14.5% growth in 2010 followed by solid 13% growth in 2011.

The forecast for inflation-adjusted investment in equipment and software is for 14.2% growth in 2010 and for 11.6% growth in 2011. Capital equipment spending in high-tech sectors will also continue to improve. Inflation-adjusted expenditures for information processing equipment are anticipated to increase by 12.7% in 2010 and by 7% in 2011.

MAPI expects industrial equipment expenditures to advance by 7.3% in 2010 before surging by 18.8% in 2011. The outlook for spending on transportation equipment is for a robust 54.6% increase in 2010 and 25.5% growth in 2011. These figures should compensate for the 51.5% decline in 2009.

Spending on non-residential structures is the lone GDP expenditure category expected to decline in each of the next two years, falling by 14.3% in 2010 and decreasing by 3.2% in 2011.

Exports and imports will both see gains. Inflation-adjusted exports are anticipated to improve by 12.5% in 2010 and by 8.1% in 2011. Imports are expected to grow by 11.8% in 2010 and by 6.7% in 2011. MAPI forecasts overall unemployment to remain high, averaging 9.6% in 2010 and 9.4% in 2011. Manufacturing is expected to see a hiring increase, albeit less than previously anticipated. The sector is forecast to add 277,000 jobs in 2010 and 373,000 jobs in 2011, although the numbers are down from 400,000 and 500,000, respectively, in MAPI’s May report.