U.S. industrial activity slowed in the second quarter of 2012 and the stall may delay the transition from modest to moderate growth until the second half of 2014, according to the quarterly Manufacturers Alliance for Productivity and Innovation (MAPI) U.S. Industrial Outlook (EO-111), a report that analyzes 27 major industries.
After growing at a robust 10 percent annual rate in the first quarter of 2012, manufacturing decelerated to a nominal 1 percent in the second quarter. MAPI forecasts that industrial production will increase 4.5 percent in 2012, down from 5.2 percent in the June report, and 2.3 percent in 2013, a decrease from 3.3 percent in the previous forecast. Manufacturing production should outperform GDP growth, which MAPI estimates will be 2.0 percent in 2012 and 1.7 percent 2013.
“The outlook is for modest growth through the remainder of this year and a gradual increase in 2013, but it will not be until the second half of 2014 that the economy will grow at what could be called a moderate pace,” said Daniel J. Meckstroth, Ph.D., MAPI Chief Economist and author of the analysis.
“Consumers continue to deleverage from debt and therefore can only increase spending commensurate with after-tax income adjusted for inflation. Recently, the pace of employment growth has been enough to absorb new entrants to the labor force but not enough to significantly reduce the unemployment rate. Less unemployment insurance income and increases in state and local taxes have eaten away at personal income gains. As a result, consumer spending can rise at only a sluggish pace.”
The report offers economic forecasts for 24 of the 27 industries. MAPI anticipates that 18 of these will show gains in 2012, 2 will remain flat, and 4 will decline. The engine, turbine, and power transmission equipment sector will grow by 29 percent and housing starts will see a 24 percent increase. The outlook improves in 2013 with growth likely in 23 of 24 industries, led by housing starts at 22 percent. Public works construction is the lone industry expected to decline in 2013, by 3 percent.
According to the report, non-high-tech manufacturing production (which accounts for 90 percent of the total) is anticipated to increase 4.7 percent in 2012, down from 5.5 percent in the previous forecast, and 2.4 percent in 2013, a decrease from 3.2 percent in the June report. High-tech industrial production (computers and electronic products) is projected to expand by 4.9 percent in 2012 and by 5.7 percent in 2013. MAPI’s June analysis anticipated a 5.3 percent gain in 2012 and 7.7 percent growth in 2013.
Twenty-one of the 27 industries MAPI monitors had inflation-adjusted new orders or production above the level of one year ago (three more than reported in MAPI’s previous report), five declined, and one was flat. Engine, turbine, and power transmission equipment grew by 30 percent in the three months ending July 2012 compared to the same period one year earlier, while motor vehicles and parts improved by 26 percent in the same time frame.
The largest drop came in domestic electronic computers, which declined by 13 percent.
Meckstroth reported that 10 industries are in the accelerating growth (recovery) phase of the business cycle; 11 are in the decelerating growth (expansion) phase; 4 are in the accelerating decline (either early recession or mid-recession) phase; and 2 are in the decelerating decline (late recession or very mild recession) phase of the cycle.
The current analysis takes a first look at a longer-term horizon and anticipates 3.3 percent overall manufacturing growth in 2014.