Despite Challenges, Industrial Sector Seen Maintaining Growth

Aerospace, mining and oil and gas field machinery continue fast pace in Manufacturers Alliance/MAPI quarterly industrial outlook

Arlington, VA — September 7, 2007 — While there will likely be significant deceleration in manufacturing growth in 2007, the second quarter showed signs of resiliency, and 2008 looms as an improvement, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook, a report that analyzes 27 major industries.

Manufacturing industrial production expanded at a 3.9 percent annual rate in second quarter 2007, far better than the weak 0.8 percent in the first quarter. For the year as a whole, though, the report predicts that manufacturing production growth will decelerate from the 4.7 percent recorded in 2006 to 2.0 percent growth in 2007, before rebounding to 2.9 percent growth in 2008.

"An improvement in manufacturers' exports in most industries and the end of an inventory drawdown explains the bounce back in second quarter industrial activity," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist and author of the analysis. "Unfortunately, the manufacturing sector cannot completely shake off the depressing effect of the housing collapse and the downward drifting motor vehicles market. Furthermore, we no longer look to strong business investment to lead economic growth."

Decline in New Orders, Production

In a signal that manufacturing continued to face headwinds in the first half of 2007, second quarter figures show that 14 of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, down from 16 industries that reported growth in the previous quarter.

Six industries enjoyed strong double-digit year-over-year growth in the second quarter, including electrical equipment, and mining and oil and gas field equipment, each at 13 percent; and aerospace products and parts; communications equipment; industrial machinery; and private non-residential construction all grew by 12 percent.

Consumer-oriented industries remain the weakest industrial sector, with housing activity plummeting by 22 percent in second quarter 2007. In the equipment industry, construction machinery declined by 13 percent.

Meckstroth concluded that five industries are in the accelerating growth (recovery) phase of the business cycle; 11 are in the decelerating growth (expansion) phase; six industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and five are in the decelerating decline (late recession or very mild recession) phase of the cycle.

Double-digit Growth in Mining, Oil and Gas

The report also offers economic forecasts for 24 of the 27 industries for 2007 and 2008.

The MAPI forecast series predicts two industries will achieve double-digit growth in both 2007 and 2008 — mining and oil and gas field machinery, 12 percent in 2007 and 11 percent in 2008; and aerospace products and parts, with expected growth of 11 percent in each year. MAPI envisions two other industries to see double-digit growth in at least one of these years. Communications equipment should continue its strong showing in 2007, with anticipated growth of 14 percent, followed by an 8 percent advance in 2008. Electrical equipment is anticipated to grow by 12 percent this year but decline by 1 percent in 2008, according to the group's projections.

Three industries are forecast to have negative change in both 2007 and in 2008. Continuing its struggles, housing is likely to decline by 23 percent in 2007 and by 6 percent in 2008; in concert with the housing decline, the household appliance sector is anticipated to drop by 5 percent this year and by 6 percent in 2008; additionally, construction machinery could decline by 15 percent in 2007 and by 7 percent next year.

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