Weakness in U.S. Economy Showing No Signs of Abating, MAPI Reports

GDP may stay marginally positive, exports to remain relatively strong; durable goods, industrial equipment among key areas facing negative growth in 2009, Manufacturers Alliance says

Arlington, VA — August 21, 2008 — The weakness in the U.S. economy shows no signs of immediate abatement, and significant challenges may last well into 2009, although exports continue to provide one bright spot for the economy, according to a new report from The Manufacturers Alliance/MAPI.

The organization's "Quarterly Economic Forecast" predicts that inflation-adjusted gross domestic product (GDP) growth will slow to 1.6 percent in 2008 and decelerate to 1.3 percent in 2009. The 2009 GDP forecast is down from 1.9 percent growth projected in MAPI's May report.

"The Internal Revenue Service accelerated the payment of tax rebates this year under the economic stimulus plan, getting cash in consumers' hands earlier than expected," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist. "The cash windfall is only temporary, and we expect a corresponding decline in spending in fourth quarter 2008 and into early 2009."

Good News for High Tech

Manufacturing production growth is expected to sink into negative territory in 2008, declining 0.5 percent following an already low 1.7 percent growth in 2007. It is forecast, though, to return to positive range, albeit a weak 1.6 percent, in 2009. The previous quarterly MAPI report had forecast production to grow by 0.4 percent in 2008 and by 3.1 percent next year.

Production in non-high-tech industries is anticipated to decline 1.8 percent this year and to grow by 0.2 percent in 2009. There is, however, positive news in the computers and electronics products sector. High-tech industrial production is expected to rise 15.7 percent in 2008 and 14.7 percent in 2009.

The GDP account for inflation-adjusted investment in equipment and software should increase by 0.8 percent in 2008 and by 2.3 percent in 2009. The largest percentage gains in capital equipment spending will come in the aforementioned high-tech sectors. Inflation-adjusted expenditures for information processing equipment are expected to rise 8.1 percent in 2008 and 5.7 percent in 2009, up from 6.9 percent and 3.3 percent, respectively, in the May report.

In addition, the forecast calls for industrial equipment expenditures to decline by 0.4 percent this year and to further decline by 7.1 percent in 2009. The latter figure compares with a previously anticipated 2.8 percent loss in 2009 in the May report. The outlook for spending on transportation equipment calls for an 18.2 percent decline in 2008, followed by a recovery to 7.6 percent growth in 2009.

Exports Continue to Shine

Spending on non-residential structures is expected to retrench over the next two years. While spending in this area increased by 12.9 percent in 2007, it is forecast to decelerate to 9.9 percent growth in 2008 and then decline by 7.9 percent in 2009.

Exports and imports, however, will likely continue to buttress the soft economic environment. Export growth should continue to outpace that of imports by a wide margin. Inflation-adjusted exports should rise 8.4 percent in 2008 and 7.3 percent in 2009, while imports are expected to decline by 1.4 percent this year and to increase by only 0.4 percent next year.

"Consumers are reducing discretionary purchases; these items tend to be imported," Meckstroth added. "At the same time, a weak dollar has improved the competitive position of U.S. exports of goods and services in the world marketplace. A declining dollar is beneficial and has made a major contribution in keeping the economy growing amid severe economic shocks."

The forecast envisions the unemployment rate to average 5.4 percent in 2008 and 6.0 percent in 2009.

The Manufacturers Alliance/MAPI, established 1933, is a nonprofit organization engaged in economic and policy research, continuing professional education and allied activities.