OK, We Get It, It's Bad Out There

Manufacturers Alliance/MAPI Quarterly U.S. Industrial Outlook shows recession intensifying, with manufacturing production likely to see severe decline followed by moderate rebound

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Arlington, VA — February 24, 2009 — While the U.S. recession has intensified in the past three months, and as financial contagion spreads to other regions of the world, a harsh 2009 may give way to a moderate rebound in 2010, according to the Manufacturers Alliance/MAPI "U.S. Industrial Outlook: Accelerating Decline" report analyzing 27 major industries.

"It is clear that a global recession is in progress," said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI and author of the analysis. "A severe recession among our global partners has caused exports to decline, thereby removing a previously positive support to the economy, particularly to the manufacturing sector.'

Fortunately, Meckstroth sees an eventual end to the current recession, perhaps by late 2009. "A second round of federal fiscal stimulus, this time of major proportions; growing pent-up demand as spending is postponed; lower commodity prices, particularly oil; lower mortgage and borrowing rates resulting from Federal Reserve monetary stimulus; and declining imports will all contribute to a rebound in industrial production activity in late 2009," he said.

On an annual basis, MAPI forecasts manufacturing production to fall 9 percent in 2009 and grow 3 percent in 2010.

Downturn Across the Board
Manufacturing industrial production, measured on a quarter-to-quarter basis, declined at a 16 percent annual rate in fourth quarter 2008 after falling at a 9 percent annual rate in the third quarter.

Non-high-tech manufacturing production declined at a steep 15 percent annual rate in the fourth quarter of 2008. Non-high-tech manufacturing production is expected to decline 8 percent this year and rebound a modest 2 percent in 2010. High-tech industrial production fell at a 29 percent annual rate in the fourth quarter of 2008. MAPI predicts it will decline 10 percent in 2009 and post 6 percent growth in 2010.

There was a significant downturn in the 2008 fourth quarter figures for manufacturing. Seven of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, two fewer than reported in the third quarter, while 20 industries had production below the level of one year ago.

The largest drop came in housing starts which fell by 43 percent. Steel production declined 41 percent, material handling equipment dropped by 25 percent, and industrial machinery and domestic electronic computer equipment production each decreased by 23 percent.

Meckstroth finds that no industries are in the accelerating growth (recovery) phase of the business cycle; seven are in the decelerating growth (expansion) phase; 17 industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and three are in the decelerating decline (late recession or very mild recession) phase of the cycle.

Better Times Ahead

The report also offers economic forecasts for 24 of the 27 industries for 2009 and 2010. The recession in the manufacturing sector is expected to last throughout this year, with MAPI forecasting only one of 24 industries to show gains; aerospace products and parts is predicted to grow by 7 percent in 2009.

A turnaround is anticipated to begin in 2010, with 19 of 24 industries expected to expand, led by housing starts at a healthy 84 percent increase. While no other industry is forecast to grow by double digits in 2010, 14 are expected to increase between 4 percent and 6 percent.

Four industries are expected to experience negative change in both 2009 and in 2010, with mining and oil and gas field machinery showing the most weakness. The industry is expected to decline by 13 percent in 2009 and by 24 percent in 2010. The others are domestic electronic computer equipment (16 percent decline in 2009, 13 percent in 2010), private, non-residential construction (12 percent and 17 percent, respectively), and electrical equipment (10 percent and 1 percent, respectively).