Robust spending on goods in the first quarter of 2012, spurred primarily by pent-up demand to purchase items previously postponed by both consumers and businesses, is enabling manufacturing to continue leading the U.S. economic recovery.
The Manufacturers Alliance for Productivity and Innovation (MAPI) Quarterly Economic Forecast predicts that inflation-adjusted gross domestic product (GDP) will expand by 2.2 percent in both 2012 and 2013, a solid increase from 1.7 percent growth in 2011. The 2012 forecast keeps pace with the previously estimated 2.2 percent growth, while the 2013 forecast is down slightly from the 2.4 percent growth anticipated in MAPI’s February quarterly report.
“Spending on goods, adjusted for inflation, increased at a 13 percent annual rate in the fourth quarter of 2011 and at a 7 percent annual rate in the first quarter of 2012,” noted Daniel J. Meckstroth, Ph.D., MAPI Chief Economist. “Consumers and businesses were more confident about their economic prospects and/or they were unable to postpone purchases any longer, particularly motor vehicles. Another indication that the economy is on a sustainable growth path is that employment levels are growing in manufacturing, construction, and the services sectors, leading to relatively balanced employment growth.”
Manufacturing production will outpace the overall economy and is expected to show growth of 5.2 percent in 2012 and 3.3 percent in 2013. The 2012 figure is up from 4.0 percent and the 2013 estimate is down from 3.6 percent from the February forecast. Manufacturing is expected to see a net increase in hiring, with the sector forecast to add 312,000 jobs in 2012 and 361,000 jobs in 2013. These figures are well above the February forecast of 210,000 jobs in 2012 and 220,000 jobs in 2013.
The economic outlook, however, is not without risk.
“Iran has threatened to disrupt oil tanker traffic in the Strait of Hormuz, and although tensions have recently eased, any disruption to shipping traffic would dramatically push up oil prices,” Meckstroth said. “A second risk factor is if the sovereign debt crisis spreads to the banking sector in Spain and Italy. There could be a threat for forcing government bank bailouts, the breakup of the euro currency, and U.S. bank losses on European debt and another bank lending freeze. The third major risk is political gridlock over the federal spending fiscal cliff and raising the debt ceiling issues that must be dealt with in early 2013.”
Production in non-high-tech industries is expected to increase by 5.2 percent in 2012 and by 3.1 percent in 2013. High-tech manufacturing production, which accounts for approximately 10 percent of all manufacturing, is anticipated to grow at a 5.3 percent rate in 2012 and 7.7 percent in 2013.
The forecast for inflation-adjusted investment in equipment and software is for growth of 7.9 percent in both 2012 and 2013. Capital equipment spending in high-tech sectors will also rise. Inflation-adjusted expenditures for information processing equipment are anticipated to increase by 7.5 percent in 2012 and by 8.7 percent in 2013.
MAPI expects industrial equipment expenditures to advance by 7.7 percent in 2012 and by 9.3 percent in 2013. The outlook for spending on transportation equipment is for growth of 15.7 percent in 2012 and 9.4 percent in 2013. Spending on nonresidential structures will improve by only 0.3 percent in 2012 before accelerating to 4.4 percent in 2013.
Inflation-adjusted exports are anticipated to improve by 4.2 percent in 2012 and by 5.0 percent in 2013. Imports are expected to grow by 4.1 percent in 2012 and by 4.2 percent in 2013. MAPI forecasts overall unemployment to average 8.1 percent in 2012 and 7.8 percent in 2013.
The price per barrel of imported crude oil is expected to average $107.60 per barrel in 2012 and $107.30 in 2013.