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MAPI Forecasting Slow Growth for Manufacturing Through 2018

A stronger dollar hurting exports, continued aversions to investment and high inventory levels are overshadowing growth in other areas.

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The MAPI Foundation (the research affiliate of the Manufacturers Alliance for Productivity and Innovation) has released its latest U.S. Industrial Outlook, a quarterly analysis of 27 major industries. Some of the key findings from Chief Economist Dan Meckstroth included:

  • Industrial production levels were essentially unchanged from the third to the fourth quarter of 2015.
  • Factors such as high inventories, a stronger dollar that makes exports more expensive, falling commodity prices (especially oil), and the classification of large purchases as risks instead of investments are some of the primary causes of this slow growth.
  • The sector's erratic pattern of surges and declines isn't providing a solid footing for expansion, with only 1.1 percent production growth expected this year.

Meckstroth revised his forecast for 2016 to show slightly lower GDP growth, but significantly slower growth in manufacturing. He’s forecasting 1.1 percent growth in 2016, 2.4 percent in 2017 and 2.5 percent in 2018 for production levels. He also stated that strong domestic demand is buffering the overall economy, which is also benefiting from a steady growth in jobs. In particular, he identified the motor vehicle and housing supply chains as areas of strength.

Looking longer term, Meckstroth is projecting the following:

  • Manufacturing will experience almost no production growth in the first half of 2016 but should accelerate to a three percent annual rate in the second half. Meckstroth predicts that manufacturing will not reach its pre-recession production level until the third quarter of 2017.
  • In his cyclical analysis of manufacturing industries, Meckstroth finds that the housing supply chain will ramp up for three more years.
  • Motor vehicles' growth streak will continue through 2017.
  • Demographics and the Affordable Care Act will drive demand for medical care, equipment and facility construction.
  • Total machinery production will decline this year, as will mining and drilling equipment production. Mining, however should rebound in the following two years.

The report also offers specific economic forecasts for 23 industry segments. The MAPI Foundation anticipates that 13 sectors will show gains in 2016. That information can be found here.

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