U.S. Industrial Outlook: Employment Gains Should Lead to Growth in 2016
Flat manufacturing production in the fourth quarter of 2015 should give way to 3.3% growth in the first half of 2016, in part because of expected job gains, according to the MAPI Foundation's U.S. Industrial Outlook, a quarterly report that analyzes 27 major industries. The MAPI Foundation is the research affiliate of the Manufacturers Alliance for Productivity and Innovation.
Manufacturing industrial production rose at a 3.3% annual rate in the third quarter of 2015, a meager recovery from a flat first half of the year, and to which it is anticipated to return in the fourth quarter because of a predicted inventory runoff in November and December.
The MAPI Foundation forecasts manufacturing production growth of 2.6% in 2016, 3.0% in 2017, and 2.8% in 2018. The 2016 forecast is a decrease from 3.4% and the 2017 forecast is lower than the 3.1% in the September report. The MAPI Foundation anticipates overall GDP will advance by 2.9% in 2016, 2.7% in 2017, and 2.5% in 2018.
"The growth driver for the outlook is continued strong employment growth, which creates new income growth and a solid base of consumer spending," said MAPI Foundation Chief Economist Daniel J. Meckstroth, Ph.D. "Another impetus is easy credit availability, which propels big-ticket spending for motor vehicles, residential housing, and nonresidential construction.
"The 2016 outlook is helped by the absorption of the negative shocks in 2015 such as the severe winter that disrupted transportation and shut down plants," he added. "There will not be another West Coast port strike and oil and gas prices will not drop by half again next year. And while the U.S. dollar may appreciate somewhat in 2016, it will not surge 15% again. The absence of these negative shocks provides some positive momentum for 2016."
The report offers economic forecasts for 23 of the 27 industries. The MAPI Foundation anticipates that 14 will show gains in 2016, 5 will decline, and 4 will remain flat. The top industry performers will be housing starts and private nonresidential construction, with anticipated growth of 15% and 9%, respectively.
The outlook is improved for 2017, with growth likely in 21 industries, led by mining, oil and gas field machinery at 14%. No industries are expected to decline, but 2—iron and steel and paper production—are forecast to be flat.
According to the report, non-high-tech manufacturing production (which accounts for 95% of the total) is anticipated to increase 2.1% in 2016, 3.0% in 2017, and 2.6% in 2018. High-tech industrial production (computers and electronic products) is projected to expand by 4.3% in 2016, 5.7% in 2017, and 5.5% in 2018.
During the report period (August through October 2015 for most sectors), 16 of the 27 industries Meckstroth monitors had inflation-adjusted new orders or production at or above the level of one year prior, and 11 declined. The 16 industries were one fewer than in the previous report.
Meckstroth reported that 6 industries are in the accelerating growth (recovery) phase of the business cycle, 10 are in the decelerating growth (expansion) phase, 8 are in the accelerating decline (either early recession or mid-recession) phase, and 3 are in the decelerating decline (late recession or very mild recession) phase.
The December report traditionally offers a five-year forecast horizon. Both manufacturing production and GDP are predicted to average 2.6% annual growth from 2016 to 2020.