Industry outlook calls for optimism, manufacturing group says

MAPI quarterly economic forecast calls for 3% growth in manufacturing this year, with more on the way in 2014

Although economic growth for 2013 remains restrained, at least one industry group is calling for optimism now and through the early part of 2014. In a quarterly economic forecast released this week, the Manufacturers Alliance for Productivity and Innovation (MAPI) points to improving fundamentals as a key reason manufacturing-related business should be looking up.

MAPI predicts that inflation-adjusted gross domestic product will expand 1.8% in 2013 and 2.8% in 2014, showing no change from the group’s first-quarter report, released in February. Manufacturing growth will outpace the general economy, growing 3.1% this year and 3.6% in 2014.

“There are a number of reasons for an improved outlook,” MAPI chief economist Daniel J. Meckstroth said in a statement detailing the report. “Consumer deleveraging is close to an end and households have the capacity to use more credit; housing prices are rising and with that change comes a virtuous cycle of increasing wealth, consumption, and income that feeds back into more housing activity; pent-up demand is releasing postponed spending for consumer durable goods; and the job market is repairing itself—employment growth is more balanced among the various sectors.”

Meckstroth added that inflation, higher taxes, government spending reductions and negative net exports in 2013 and 2014 continue to restrain growth in both the overall and manufacturing economies.

Looking at specific industry sectors, MAPI expects production in non-high-tech industries to rise 3% this year and 3.5% next year, while high-tech manufacturing production—which accounts for 10% of all manufacturing—should grow 4.4% this year and 6.1% next year.

Among other factors, MAPI expects businesses to make solid investments in equipment and software into 2014. Capital equipment spending in high-tech sectors is expected to rise, as are expenditures for information processing equipment and industrial equipment.

“Despite the volatility and struggle for growth, economic fundamentals have definitely improved,” Meckstroth added.

Such positives can be seen in MAPI’s prospects for employment. Manufacturing is expected to see a net increase in hiring, with the sector anticipated to add 137,000 jobs in 2013, well above the group’s February forecast of 87,000 jobs. The outlook is for an increase of 352,000 jobs in 2014, an even larger advance from the 289,000 previously forecast.

The news comes on the heels of disappointing results in a May business report from the Institute for Supply Management (ISM). IMS’s monthly Purchasing Manager’s Index (PMI) registered 49 in May, its lowest point in four years and reflecting a steady decline since February. A PMI below 50 indicates contraction in the manufacturing sector. May’s reading was the first contraction since November 2012 and only the second since July 2009.

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