posted on 06.17.14

Need to Know . . .

The manufacturing outlook for 2014 and 2015 calls for an acceleration in the growth rate each year.

Some growth themes that create an incentive for investment are expanding energy infrastructure, revival of the housing industry supply chain, and strong demand for transportation equipment.

Manufacturing production grew about 2.6% in 2013. MAPI forecasts growth of 3.2% in 2014 and 4.0% in 2015.

Summary of Findings and Forecasts

Every three months, MAPI provides a detailed look at the health of the domestic manufacturing sector and reviews the performance of a selected group of its most important sub-sectors. This report covers the actual data available through April 2014 and provides our forecasts, completed in mid-May 2014.

Manufacturing industrial production increased at a 2.1% annual rate in the first quarter of 2014. Production declined very sharply in January (particularly because of weather) but rebounded dramatically in February and March 2014, more than offsetting the January decline.

Unfortunately, production activity declined 0.4% from March to April 2014 because the manufacturing sector got too far ahead of demand growth in the general economy. For example, inflation-adjusted GDP fell 1% in the first quarter of 2014. Manufacturing production grew faster than demand, creating an inventory buildup.

MAPI believes, however, that these adjustment factors are temporary and do not change the outlook for stronger growth in manufacturing this year and next. Recent strong sentiment indicators and manufacturing employment growth confirm this view.

The manufacturing outlook for 2014 and 2015 calls for an acceleration in the growth rate each year. An overarching reason for the anticipated growth rebound is that factors that were dragging down growth (mainly tax increases and dysfunctional government issues) were absorbed in 2013 and will not get worse over the next two years. Consumer-driven manufacturing growth will be relatively stable, supported by employment gains and rising wages. Households have low debt burdens and their wealth is rising because of higher stock and home prices.

Business investment and material manufacturing are responsible for nearly all the acceleration in production growth. Firms have lots of cash, are profitable, and in manufacturing have relatively high utilization rates. Some growth themes that create an incentive for investment are expanding energy infrastructure, revival of the housing industry supply chain, and strong demand for transportation equipment. Firms are more likely to invest thanks to the two-year federal budget, debt ceiling agreement, and renewed growth in Europe and Japan. Investment in manufacturing machinery and structures should lead the growth acceleration in investment-driven manufacturing production. The acceleration in investment-driven and consumer-driven manufacturing will underpin acceleration in material industries production.

Manufacturing production grew about 2.6% in 2013. MAPI forecasts growth of 3.2% in 2014 and 4.0% in 2015.

High-tech production (computers and electronic products) increased 7.0% in 2013. We predict growth of 6.6% in 2014 and 10% in 2015. Non-high-tech or traditional manufacturing, which accounts for the vast bulk of value-added in the sector, grew about 2.3% in 2013. The forecast is for a 2.9% increase in 2014 and a 3.7% gain in 2015.

Update provided in partnership with the Manufacturers Alliance of Productivity and Innovation.  To view the full 17-page report, log in to the MTI Members Only Area and click on US Industrial Report.