U.S. Industrial Outlook December 2013

Monday, December 16, 2013

U.S. Industrial Outlook: A Growth Rebound in the Making

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 subsectors. This report covers the actual data available through October 2013 and provides our forecasts, which were completed in late November 2013. In this quarterly review, we extend the typical two-year forecast to five years and provide the average annual growth rate for 2016 through 2018.

Manufacturing industrial production increased at a 1.0 percent annual rate in the third quarter of 2013 but grew at a 3.8 percent annual rate in the month of October. The acceleration in manufacturing activity is coming off of essentially no growth in the second quarter but a 4.9 percent annual rate of growth in the first quarter of 2013. The year began with manufacturing production surging, but the pace was not supported by the performance of the overall economy. The industrial sector therefore went through an adjustment period to realign orders and production with a slow-growing domestic economy and the deteriorating export prospects in the second quarter.

Fortunately, the economy accelerated in the third quarter and our major export market overseas improved, so manufacturing production put together three months of continuous growth in August, September, and October. The Institute for Supply Management’s Purchasing Managers Index readings for October and November were very positive, pointing to further acceleration of industrial activity.

The manufacturing outlook for 2014 and 2015 calls for a percentage point acceleration in the growth rate each year. Consumer-driven manufacturing growth, however, will be relatively stable and supported by surprisingly robust employment growth. Households have low debt burdens and their wealth is rising because of higher stock prices and home prices. Importantly, no major tax increases are foreseen for the near term.

Business investment–driven manufacturing is responsible for the acceleration in production growth. Businesses are well positioned for making new investments in structures and equipment. Firms have low debt, are profitable, and have relatively high utilization rates. What has been lacking is more certainty about the future. With the Eurozone coming out of recession, export activity should pick up and provide a boost to business sentiment. After shutting the federal government down in October and refusing to raise the debt ceiling until the last minute, both political parties were widely criticized by the public. With any hope, politicians learned a lesson and will not flirt with disaster again. More certainty will promote investment activity.

Government austerity will be less of a drag on economic growth than it was in 2013. The Ryan-Murray budget deal should be enacted; otherwise, the federal government will be run with continuing resolutions.

Manufacturing production grew about 2.1 percent in 2013. MAPI forecasts 3.1 percent growth in 2014 and a 4.1 percent increase in 2015. The intermediate-term outlook is for growth of 3.6 percent in 2016, 2.9 percent in 2017, and 3.1 percent in 2018.

High-tech production (computers and electronic products) increased 4.4 percent in 2013. We predict growth to be 6.8 percent in 2014 and 8.4 percent in 2015. The intermediate-term outlook is for growth of 8.3 percent in 2016, 8.6 percent in 2017, and 9.8 percent in 2018. Non-high-tech or traditional manufacturing, which accounts for the vast bulk of value-added in the sector, grew about 2.0 percent in 2013. The forecast is for a 3.0 percent increase in 2014 and a 4.0 percent gain in 2015. The outlook for 2016 through 2018 is for growth rates of 3.5, 2.8, and 2.8 percent, respectively.

Among the highlights of this report’s cyclical analysis of 27 industries are these findings and the MAPI forecasts shown in Table 2:

  • Housing starts will post large percentage gains this year, next year, and in 2015. Rising mortgage rates will not derail the recovery. Housing prices are rising and new and existing home inventories are tight. The housing rebound particularly helps wood products, nonmetallic mineral products, HVAC, household appliances, furniture, and construction machinery.
  • There is pent-up demand for big-ticket purchases of homes and motor vehicles. While both industries will grow through 2015, there is more upside potential in housing and its supply chain. The recovery in light vehicle sales is at a more advanced stage.
  • A recovery in Europe and Japan and a faster pace of domestic growth should restore business confidence in business investment. The pace of business equipment production is predicted to accelerate and be a major source of manufacturing growth.
  • Oil prices should trend downward but stay high enough to encourage more drilling. Natural gas prices will remain relatively low and slowly drift upward. Mining and drilling equipment production should be weak in 2013 and post moderate gains in 2014 and 2015.
  • The growth rate in high-tech industries—semiconductors, electronic computer equipment, communications equipment—should accelerate in 2014 and 2015 at a relatively strong pace.
  • Medical equipment production will post solid growth thanks to aging trends and the Affordable Care Act. Pharmaceutical production declined in 2013 and should have little growth in 2014 before showing a pickup in growth. The loss of patent protection on blockbuster drugs is the major impediment to growth.
  • Aerospace production is starting to ramp up again. The civilian aircraft backlog is large and aircraft production will show strong growth over the next several years. Defense cuts will be a headwind.
  • The decline in private nonresidential construction is ending; construction activity should accelerate in 2014 and 2015.
  • Public construction activity, driven by austerity, should be relatively flat and lackluster.

Industries in the Current Business Cycle
The pairs of figures for each of the 27 industries analyzed in this report show the annual level of activity over the last 10 years and the monthly rate of change since October 2003. Forecasts of physical production are shown through 2018. The rate of change shown in Figures 2 through 28 is 3/12 (the year-over-year percentage change in a three-month moving average). Analyzing this measure of business activity in the context of the more stable annual change illustrates the cyclical position of each industrial sector.

Individual Analysis for 27 Industrial Sectors
Highlights of inflation-adjusted business activity in selected manufacturing, drilling, and construction markets are discussed below.

Housing starts (Figures 2a and 2b)

  • Housing starts increased about 17 percent to 913,000 units in 2013 and are forecast to increase 25 percent to 1,140,000 units in 2014 and 29 percent to 1,475,000 units in 2015. In 2016 to 2018, housing starts will increase 3 percent a year and average 1,616,000 units.
  • As a result of the federal government shutdown, housing starts data have not been updated and are two months behind schedule.
  • The Case-Shiller housing price index increased at a 23 percent annual rate in the three months ending in September compared with the previous quarter and was 13 percent above last year.
  • In the three months ending August 2013, new home sales were 15 percent above year-ago levels but down 15 percent at an annual rate from the previous three months.
  • The inventory of new homes was 5.0 months of supply in August 2013, up from 4.5 months in December 2012—the lowest inventory at current sales rate since 2004.
  • The mention of the Federal Reserve tapering its mortgage-backed securities purchasing sent mortgage rates rising, from 3.35 percent in early May to 4.6 percent in early September. Tapering has not occurred. At the end of November, mortgage rates eased to 4.22 percent. The forecast is for the Fed to start tapering in early 2014 and end the program by year’s end.
  • In the third quarter of 2013, the combined percentage of all mortgage loans in foreclosure or delinquent was 9.75 percent, down 196 basis points from the third quarter of 2012.

     

Motor vehicles and parts production (Figures 3a and 3b)

  • Motor vehicles and parts production increased 7 percent in 2013 and is forecast to increase 4 percent in 2014 and 4 percent in 2015. In the three years ending in 2018, the average increase in production is expected to be 2 percent a year. We expect auto and light truck sales to total 15.5 million units in 2013, 16 million units in 2014, and 16.4 million units in 2015. The average sales rate for 2016 to 2018 is 16.7 million units.
  • Overall production was up 9 percent in the three months ending October 2013 compared with the same period one year ago. Production increased 9 percent for automobiles and 19 percent for light trucks and utility vehicles. Auto parts production increased 4 percent over year-ago levels.
  • Heavy-duty truck production increased 14 percent in the three months ending October 2013 over the same period one year ago; truck trailer production increased 2 percent.
  • Heavy-duty truck production should increase 4 percent in 2013. We forecast 13 percent growth in 2014 and 9 percent growth in 2015. Production should decline at a 3 percent annual rate from 2016 to 2018.
  • Production of campers and travel trailers declined 2 percent in the three months ending October 2013 over the same period one year earlier; big-ticket motor home production increased 44 percent.
  • Motor vehicles and parts imports were up 6 percent while exports increased 7 percent; the large trade deficit was more negative in the third quarter of 2013 compared with one year earlier.

     

Household appliance production (Figures 4a and 4b)

  • Household appliance production increased 7 percent in 2013. MAPI forecasts 5 percent growth in 2014 and 2015. In the three years ending 2018, the average annual increase in production is expected to be 2 percent.
  • Production grew 9 percent in the three months ending October 2013 compared with the same period one year ago; small appliance production increased 19 percent but large appliance production increased only 4 percent (the production value of major appliances is twice as large as that of small appliances). The momentum indicator, relating production from August to October 2013 to that of the previous three months, shows production increased at a 7 percent annual rate.
  • Existing home sales in October increased 6 percent from one year earlier.
  • Household appliance imports increased 10 percent while exports grew 7 percent; the trade deficit was more negative in the third quarter of 2013 compared with one year ago, as trade is predominately in imports.

     

Pharmaceutical and medicine production (Figures 5a and 5b)

  • Pharmaceutical and medicine production declined 2 percent in 2013. Production is forecast to increase 1 percent in 2014 and grow 3 percent in 2015. The average rate of growth is predicted to be 5 percent a year from 2016 to 2018.
  • Production was flat in the three months ending October 2013 compared with the same period one year ago, but the recent quarter-to-quarter change fell at a 3 percent annual rate.
  • The dominant issue in the pharmaceutical industry is that firms are losing patent protection on an increasingly large number of mega-revenue products and are not able to replace the losses with other blockbusters. The weak economy and high unemployment have reduced patient visits to doctors’ offices, reduced hospital admissions, and restrained prescription price inflation.
  • IMS Institute for Healthcare Informatics reports that the market share for branded medicines fell from 70 percent in 2005 to 64 percent in 2010 and is expected to decline to 53 percent by 2015.
  • Implementation of the Affordable Care Act starting in 2014 will increase access for tens of millions of people to drug treatments by reducing drug costs to patients and increasing their access to prescribers.
  • Pharmaceutical imports declined 8 percent while exports declined 6 percent; the trade deficit was less negative in the third quarter of 2013 compared with one year ago.

     

Iron and steel products production (Figures 6a and 6b)

  • Iron and steel production declined 1 percent in 2013. Production is forecast to increase 5 percent in both 2014 and 2015. Steel production is predicted to grow at a 5 percent average annual rate from 2016 to 2018.
  • Output rose 4 percent in the three months ending October 2013 versus the same period one year ago. Compared with May to July 2013, the production momentum increased at a 2 percent annual rate.
  • Capacity utilization in the U.S. steel industry was 77 percent in the week of November 23, 2013 (up from 70 percent in the same week in 2012), close to the rate for overall manufacturing.
  • U.S. durable goods manufacturing industries’ momentum was up 5 percent during August to October 2013 compared with May to July; these are predominately steel-intensive industries.
  • Steel production was up 1 percent in Europe (27 countries), fell 6 percent in Korea, and dropped 2 percent in Russia in the three months ending October 2013 compared with year-ago levels. China’s steel production rose 12 percent and Taiwan’s rose 10 percent during this time.
  • Steel product imports were down 13 percent while exports declined 3 percent; the trade deficit was less negative in the third quarter of 2013 compared with one year ago.

     

Alumina and aluminum production and processing (Figures 7a and 7b)

  • Alumina and aluminum production should increase 1 percent in 2013. Production is forecast to expand 2 percent in 2014 and 6 percent in 2015. The average rate of growth is predicted to be 6 percent a year from 2016 to 2018.
  • Production rose 5 percent in the three months ending October 2013 compared with the same period one year ago. Primary aluminum production fell 5 percent from year-ago levels. Production of aluminum sheet, plate, and foil and extruded products, accounting for 75 percent of the industry, rose 6 percent.
  • Production in aluminum-using industries was mixed: truck trailer production went up 2 percent, light vehicle production rose 19 percent, and aerospace production fell 1 percent from August to October 2013 compared with year-ago levels.
  • The Metals Service Center Institute reported that aluminum product shipments from U.S. metals services centers increased 9 percent in October 2013 versus the same month one year ago.
  • Alumina and aluminum production and processing imports increased 4 percent while exports were up 4 percent; the trade deficit was more negative in the third quarter of 2013 compared with one year ago.

     

Fabricated metal products production (Figures 8a and 8b)

  • Fabricated metals production increased 4 percent in 2013. Production is forecast to post moderate gains of 3 percent in 2014 and 5 percent in 2015. Production is predicted to grow at a 3 percent average annual rate from 2016 to 2018.
  • Production was up 4 percent in the three months ending in October relative to the same period one year ago.
  • Nearly all major types of fabricated metal products saw production increases relative to one year ago. Forging and stamping was up 1 percent, architectural and structural metals rose 7 percent, machine shop turned products and fasteners grew 2 percent, and coating, engraving, and heat treating grew 3 percent in the three months ending in October relative to the same period one year ago.
  • Fabricated metal products imports increased 3 percent while exports increased 4 percent; the trade deficit was relatively unchanged in the third quarter of 2013 compared with one year ago.

     

Basic chemicals production (Figures 9a and 9b)

  • Basic chemicals production was flat in 2013. Production is forecast to increase 2 percent in 2014 and 3 percent in 2015. Basic chemicals production is predicted to grow at a 4 percent average annual rate from 2016 to 2018.
  • Overall production increased 1 percent in the three months ending October 2013 compared with the same period one year ago, and the quarter-to-quarter momentum was also 1 percent.
  • Petrochemical and other organic chemicals production increased 5 percent in the three months ending in October versus one year ago. Petrochemical manufacturing includes ethylene, propylene, butylene, toluene, styrene, xylene, ethyl benzene, and cumene made from petroleum and natural gas.
  • Inorganic chemicals production declined 8 percent in the three months ending October 2013 compared with the same period one year ago. The decline was across the board—alkalies, chlorine, acids, dyes, pigment, industrial gases, etc.
  • A report from U.S. freight railroads indicates that chemical car loadings were up 1 percent in the first 46 weeks of 2013 versus year-ago levels.
  • Basic chemicals imports were flat while exports gained 4 percent; the trade account was more positive in the third quarter of 2013.

     

Paper production (Figures 10a and 10b)

  • Paper production was unchanged in 2013. The forecast is for 1 percent growth in 2014 and a 2 percent gain in 2015. Production is predicted to grow at a 2 percent average annual rate from 2016 to 2018.
  • Production was unchanged in the three months ending October 2013 compared with the same period one year ago. A more short-term (quarter-to-quarter) analysis reveals a 6 percent decline in production momentum.
  • Production is declining in paper mills and paperboard containers. The converted paper products sub-industry is posting relatively strong growth.
  • In a related sector, industrial production of food products was flat in the three months ending October 2013 compared with year-ago levels.
  • A report from the American Trucking Association indicated that truck tonnage was up 8 percent in October 2013 from one year ago.
  • Paper imports increased 4 percent while exports were up 3 percent; the trade surplus in paper was slightly less positive in the third quarter of 2013 compared with one year ago.

     

Construction machinery production (Figures 11a and 11b)

  • Construction machinery production increased 1 percent in 2013. The forecast is for gains of 2 percent in 2014 and 6 percent in 2015. The average rate of growth is predicted to be 5 percent a year from 2016 to 2018.
  • Production declined at a 3 percent rate during August to October 2013 versus the same period one year ago. The quarter-to-quarter momentum was also negative.
  • Private nonresidential construction activity fell 2 percent and public works construction fell 2 percent in the three months ending October 2013 compared with the same period one year ago.
  • Quarrying production was up 9 percent and logging production increased 7 percent from August to October 2013 versus one year ago.
  • Nonferrous mining production increased 3 percent in the three months ending October 2013 compared with the same period one year ago.
  • Construction equipment production is export-oriented. Imports fell 12 percent while exports declined 34 percent; trade moved to a small deficit in the third quarter of 2013 compared with a surplus in 2012.
  • Caterpillar reports that their worldwide machine deliveries to users for retail sales were down 12 percent in October 2013 versus one year ago. Mining equipment was a large source of declining demand.

     

Mining and oil and gas field machinery production (Figures 12a and 12b)

  • Mining and oil and gas field machinery production increased 3 percent in 2013. Production is predicted to increase 5 percent in both 2014 and 2015. The average rate of growth is forecast to be 6 percent a year from 2016 to 2018.
  • Production increased 5 percent in the three months ending October 2013 compared with one year ago, and the quarter-to-quarter momentum grew at a 13 percent annual rate.
  • The Energy Information Administration projects that coal production will be unchanged in 2013 and rise 3 percent in 2014.
  • Gold and silver mining in the United States increased 4 percent in the three months ending October 2013 compared with 2012.
  • Oil and gas well drilling production declined 4 percent in the three months ending October 2013 compared with 2012. Recent momentum in the drilling market was positive.
  • Mining and oil and gas field machinery production is export-oriented. Imports fell 2 percent while exports declined 19 percent; the small trade surplus was less positive in the third quarter of 2013 compared with one year ago.

     

Industrial machinery production (Figures 13a and 13b)

  • Industrial machinery is capital equipment for specific nonmetallic manufacturing industries, such as woodworking, plastics, paper, textiles, printing, food products, and semiconductors.
  • Industrial machinery production increased 2 percent in 2013. We forecast growth of 6 percent in 2014 and 7 percent in 2015. The average rate of growth is predicted to be 6 percent a year from 2016 to 2018.
  • Production increased 6 percent in the three months ending October 2013 compared with the same period one year earlier but the momentum indicator was slightly negative.
  • In related sectors, wood products production rose 9 percent, paper production was flat, textile mill production fell 5 percent, food production was flat, and plastic products production expanded 7 percent from August to October 2013 compared with the previous year.
  • The Semiconductor Equipment Association reported that equipment bookings in the three months ending October 2013 were 51 percent higher than in the same period one year ago.
  • Construction of new manufacturing plants increased 3 percent (in inflation-adjusted dollars) in the three months ending in October from one year ago.
  • Industrial machinery imports were up 7 percent while exports fell 7 percent; the trade surplus was less positive in the third quarter of 2013 compared with one year ago.

     

Ventilation, heating, air conditioning, and commercial refrigeration equipment production (HVAC) (Figures 14a and 14b)

  • HVAC production has trailed the rebound in housing and nonresidential construction. Production increased 4 percent in 2013. Production is forecast to gain 6 percent in 2014 and 8 percent in 2015. The average rate of growth is predicted to be 3 percent a year from 2016 to 2018.
  • Production rose 6 percent in the period of August to October 2013 on a year-over-year basis; the quarter-to-quarter momentum accelerated.
  • In related sectors, construction spending for home improvement increased 7 percent and inflation-adjusted private nonresidential construction fell 2 percent in the three months ending in October versus one year ago.
  • Construction related to refrigeration is mixed. Inflation-adjusted food manufacturing construction declined 7 percent and inflation-adjusted food store construction rose 16 percent in the period of August to October 2013 on a year-over-year basis.
  • HVAC imports increased 6 percent while exports rose 5 percent; the trade deficit was more negative in the third quarter of 2013 compared with one year ago.

     

Metalworking machinery production (Figures 15a and 15b)

  • Metalworking machinery consists of industrial molds; metal cutting and forming machine tools; special tools, dies, jigs, and fixtures; and miscellaneous metalworking machinery (cutting tools and rolling mill machinery).
  • Metalworking machinery production rose 1 percent in 2013. We predict that production will increase 3 percent in 2014 and 6 percent in 2015. The average rate of growth is predicted to be 4 percent a year from 2016 to 2018.
  • Production declined 2 percent in the three months ending October 2013 over year-ago levels, and the quarter-to-quarter momentum declined.
  • The U.S. Census Bureau reported that metalworking machinery orders (in dollars) were up 17 percent in the period of July to September 2013 on a year-over-year basis.
  • Metalworking machinery imports fell 5 percent and exports were also down 5 percent; the trade deficit was less negative in the third quarter of 2013 compared with one year ago.

     

Engine, turbine, and power transmission equipment production (Figures 16a and 16b)

  • Engine, turbine, and power transmission equipment is used for freight, natural gas transmission, marine engines, and electric power.
  • Engine, turbine, and power transmission equipment production increased 1 percent in 2013. Production is expected to grow 5 percent in 2014 and 7 percent in 2015. The average rate of growth is predicted to be 5 percent a year from 2016 to 2018.
  • Production grew 13 percent in the three months ending October 2013 compared with the same period one year ago, and the quarter-to-quarter momentum is even more positive.
  • Heavy-duty truck production was up 14 percent and the production of ships and boats was up 17 percent in the three months ending October 2013 over year-ago levels. All of the recent growth is in shipbuilding and repair, not boatbuilding. Ship and boat production increased 11 percent in 2013 and are predicted to grow 9 percent in 2014 and 2 percent in 2015. The average rate of growth is predicted to be negative 3 percent a year from 2016 to 2018.
  • Gas turbines are used for electric peaking generation. Electric power construction spending fell 12 percent in the three months ending in October versus the same period one year ago.
  • Turbines compress gas in pipelines and power oil and gas well drilling. Pipeline and storage construction increased 8 percent in the three months ending in October versus the same period one year ago, whereas oil and gas drilling in the United States declined 4 percent in the three months ending October 2013.
  • The American Wind Energy Association reported that there were 71 megawatts of wind power installations in the first three quarters of 2013 versus 4,743 megawatts in 2012. Congress waited until January 1, 2013 to extend the wind tax credits for projects that start in 2013 which caused a surge in fourth quarter 2012 and virtually no activity in 2013.
  • Engine, turbine, and power transmission equipment imports fell 16 percent while exports declined 6 percent; the trade account is in surplus and was more positive in the third quarter of 2013.

     

Material handling equipment new orders (Figures 17a and 17b)

  • Material handling equipment consists of elevators, escalators, conveyors, overhead traveling cranes, hoists, industrial trucks, tractors, and trailers.
  • Inflation-adjusted material handling equipment orders increased about 3 percent in 2013.
  • In the three months ending September 2013, inflation-adjusted material handling orders were up 2 percent compared with one year ago.
  • The construction of buildings where elevators and escalators could be used is declining. Construction of private and public buildings, adjusted for inflation, was down 2 percent in the three months ending in October versus the same period one year ago.
  • Material handling equipment imports declined 10 percent while exports declined 14 percent; the small trade deficit turned more negative in the third quarter of 2013 from one year ago.

     

Shipments of electronic computer equipment (Figures 18a and 18b)

  • MAPI does not forecast electronic computer equipment shipments. Shipments were down about 25 percent in 2013.
  • Computer shipments fell 21 percent in the period of July to October 2013 compared with one year ago. Electronic computer prices declined 7 percent.
  • Electronic computer imports increased 13 percent while exports were up 12 percent; the large trade deficit was more negative in the third quarter of 2013 compared with one year ago.

     

Communications equipment production business activity (Figures 19a and 19b)

  • Communications equipment encompasses telephone apparatus and broadcast and wireless communications equipment. The category also includes alarms, signaling equipment, and safety detectors.
  • Communications equipment is measured by an industrial production index that adjusts activity upward to account for quality features.
  • Production increased 1 percent in 2013. We predict that communications equipment production will increase 6 percent in 2014 and 8 percent in 2015. The average rate of growth is predicted to be 6 percent a year from 2016 to 2018.
  • Production was up 2 percent in the period of August to October 2013 compared with one year ago.
  • Construction spending for communications infrastructure (in current dollars) declined 13 percent in the three months ending in October versus one year ago.
  • Defense communications are about one-tenth of the communications equipment market; new orders (in current dollars) in this area fell 5 percent in the three months ending in September from one year ago. Civilian communications equipment orders rose 8 percent.
  • Indicators show that the production of alarms, signaling equipment, and safety detectors grew at a strong pace in the third quarter of 2013 from one year ago.
  • The communications equipment industry is very dependent on imports from contract manufacturing plants in Asia, and domestic production accounts for only a small proportion of domestic consumption. Imports rose 1 percent while exports increased 9 percent; the very large trade deficit was unchanged in the third quarter of 2013 compared with one year ago.

     

Semiconductors (Figures 20a and 20b)

  • The dollar value of global billings reported by the Semiconductor Industry Association (SIA) increased about 5 percent in 2013.
  • World semiconductor revenues are forecast by World Semiconductor Trade Statistics, an association of semiconductor companies, to grow 4 percent in 2014 and 3 percent in 2015.
  • Shipments rose 7 percent in the three months ending October 2013 compared with one year ago, while semiconductor prices were unchanged.
  • The wireless communication segment for media tablets, smartphones, and industrial electronics is expected to have strong growth. The movement away from personal computers and peripherals is restraining demand.
  • The United States is both a large importer and exporter of semiconductors. Imports rose 8 percent while exports fell 1 percent; the large trade deficit was more negative in the third quarter of 2013 compared with one year ago.

     

Navigational, measuring, electromedical, and control instruments production (Figures 21a and 21b)

  • Instrument industry production grew about 5 percent in 2013. The forecast calls for growth of 3 percent in 2014 and 5 percent in 2015. The average rate of growth is predicted to be 4 percent a year from 2016 to 2018.
  • Instrument production was up 6 percent in the three months ending October 2013 compared with one year ago.
  • Search and navigation shipments (in current dollars) fell 6 percent in the three months ending September 2013 compared with one year ago; defense search and navigation shipments declined 7 percent and nondefense shipments fell 4 percent.
  • The electromedical industry’s output is relatively unchanged. Electromedical apparatus include scopes, defibrillators, EKGs, MRIs, pacemakers, ultrasounds, and many other medical testing instruments. Irradiation apparatus include CT scanners, x-ray machines, and medical radiation therapy machines.
  • Industrial process instruments measure, control, or display industrial process activities such as temperature, pressure, vacuum, and viscosity. Industrial production activity has accelerated recently, the factory utilization rate is relatively high, and manufacturing activity has picked up. Furthermore, inflation-adjusted industrial construction rose 3 percent in the three months ending in October versus last year.
  • Instruments for measuring and testing electricity and electrical signals seem to be slowly declining. Examples of these products include circuit and continuity testers, volt meters, ohm meters, watt meters, multimeters, and semiconductor test equipment.
  • Navigational, measuring, electromedical, and control instruments imports increased 1 percent while exports fell 3 percent; the trade deficit was more negative in the third quarter of 2013 compared with one year ago.

     

Electric lighting equipment production (Figures 22a and 22b)

  • Electric lighting equipment includes electric lamp bulbs and residential, commercial, and industrial lighting fixtures.
  • Electric lighting equipment production declined 3 percent in 2013. We predict that production will increase 8 percent in 2014 and 12 percent in 2015. The average rate of growth is predicted to be 7 percent a year from 2016 to 2018.
  • Production rose 4 percent in the three months ending October 2013 compared with one year ago, and the quarter-to-quarter momentum was very strong.
  • In related sectors, inflation-adjusted residential construction spending increased 15 percent in the three months ending October 2013 from year-ago levels while nonresidential construction of buildings was down 2 percent.
  • Electric lighting equipment imports increased 6 percent while exports gained 3 percent; the trade deficit was more negative in the third quarter of 2013 compared with one year ago.

     

Electrical equipment production (Figures 23a and 23b)

  • This sector consists of transformers, motors and generators, switchgear, relays, and industrial controls.
  • Electrical equipment production increased 1 percent in 2013. Production is forecast to grow 2 percent in 2014 and 5 percent in 2015. The average rate of growth is predicted to be 4 percent a year from 2016 to 2018.
  • Production was down 1 percent in the three months ending October 2013 compared with one year ago.
  • The factory operating rate recovered quickly, reaching 76 percent in early 2012, and the utilization rate has stayed at about that level. Relay and industrial controls appear to be relatively flat.
  • Electric motors and generators provide power for many machinery and transportation applications, while generators convert motion into electricity for residential, utility, and industrial uses. Production is rapidly declining relative to one year ago.
  • Transformers and power distribution equipment tend to follow electric utility construction, the creation of new communities, and a replacement cycle. Housing construction is driving growth but is offset by a large decline in electric utility construction; transformer activity is relatively flat.
  • Switchgear and switchboard apparatus production is growing at a rapid rate.
  • Electrical equipment imports increased 4 percent while exports fell 2 percent; the trade deficit was more negative in the third quarter of 2013 compared with one year ago.

     

Medical equipment and supplies production (Figures 24a & 24b)

  • This category encompasses surgical and medical instruments, surgical appliances and supplies, and dental laboratories.
  • Medical equipment production grew 5 percent in 2013. Production is forecast to increase 3 percent in 2014 and 4 percent in 2015. The average rate of growth is predicted to be 6 percent a year from 2016 to 2018.
  • Production increased 7 percent in the three months ending October 2013 compared with year-ago levels.
  • Medical and surgical instruments production is growing very rapidly. Surgical appliances and supplies production expanded at a modest pace.
  • Dental laboratories and safety equipment and supplies and the “all other” group that includes lab equipment and hospital furniture, dental equipment and supplies, and vision care goods were either flat or grew at a slow pace in the three months ending in October.
  • Medical equipment and supplies imports increased 8 percent while exports increased 1 percent; the trade deficit was more negative in the third quarter of 2013 compared with one year ago.

     

Aerospace products and parts production (Figures 25a and 25b)

  • Aerospace products and parts production increased 1 percent in 2013. We forecast growth of 7 percent in 2014 and 12 percent in 2015. The average rate of growth is predicted to be 9 percent a year from 2016 to 2018.
  • In the three months ending October 2013, production was down 1 percent compared with one year ago.
  • Boeing reported 200 net orders for new commercial airplanes in the third quarter of 2013 and delivered 170 (up 14 percent from a year ago). Boeing delivered 601 commercial airplanes in 2012, and they expect 640 deliveries in 2013, a 6 percent increase.
  • U.S. airline traffic—measured in revenue passenger miles—rose 1.7 percent in the first eight months of 2013 versus one year ago.
  • The International Air Transport Association (IATA) says that world passenger traffic rose 5 percent in 2013 and world freight traffic grew 1 percent. They forecast 6 percent growth in passenger traffic and a 4 percent increase in freight tonnage in 2014.
  • The defense side of the aerospace business faces imminent military budget cuts and downsizing. Defense aerospace shipments (in current dollars)—about one-third of the total industry—were down 1 percent in the three months ending September 2013 versus one year ago. Civilian aircraft and parts shipments went up 4 percent in this time frame.
  • Aerospace imports increased 17 percent while exports grew 12 percent; exports are more than twice as large as imports. The trade surplus grew more positive in the third quarter of 2013 compared with one year ago.

     

Oil and gas well drilling production (Figures 26a and 26b)

  • Oil and gas well drilling production declined about 6 percent in 2013. MAPI does not forecast drilling production.
  • Drilling activity declined 4 percent in the three months ending October 2013 relative to one year ago but has positive momentum.
  • Brent oil was up to $111 per barrel in late November. Henry Hub natural gas was $3.9 per million cubic feet.
  • Baker Hughes reported that the North American rig count was 4 percent below year-ago levels in the 13 weeks ending November 27, 2013.
  • 79 percent of operating U.S. rigs looked for oil at the end of November 2013. The U.S. rig count for oil drilling was down by 2 percent in the 13 weeks ending November 27, 2013 versus the same period one year ago. The U.S. rig count for natural gas drilling was down 13 percent in the same period.

     

Private nonresidential construction put-in-place (Figures 27a and 27b)

  • Inflation-adjusted nonresidential spending was unchanged in 2013. We predict nonresidential construction activity to increase 5 percent in 2014 and 9 percent in 2015. The average rate of growth is predicted to be 10 percent a year from 2016 to 2018.
  • Nonresidential construction was down 2 percent in the three months ending in October versus year-ago levels.
  • There was strong growth in lodging (hotels) in the three months ending in October. Modest growth occurred in commercial buildings, amusement and recreation, transportation, and manufacturing. Small declines in activity were found in office buildings, healthcare, and education. Religious, communications, and power saw declining construction activity in the three months ending in October versus one year ago.
  • Construction spending for factories, adjusted for inflation, fell 3 percent in the three months ending October 2013 over year-ago levels. The strongest growth was in chemicals, fabricated metals, and transportation equipment. Large declines were seen in plastic and rubber and electronic and electrical industries. Inflation-adjusted industrial construction increased 3 percent in 2013. We forecast growth of 4 percent in 2014 and 7 percent in 2015.
  • The architectural and engineering firm billing index—a leading indicator—has been above the 50 percent threshold for growth since May 2013. The index’s October level of 51.6 percent signals modest growth.
  • Private electric power construction surged in 2012 to rebuild after a series of large natural disasters. As expected, a reduction in electric power construction developed in 2013 in the absence of severe weather events.

     

Public construction put-in-place (Figures 28a and 28b)

  • Construction spending by federal, state, and local governments is primarily directed toward schools, highways, sewers, dams, waterworks, and various public buildings.
  • Inflation-adjusted public construction spending declined 4 percent in 2013. We predict no change in 2014 and a 1 percent gain in 2015. The average rate of growth is predicted to be 2 percent a year from 2016 to 2018.
  • Public works construction declined 2 percent in the three months ending October 2013 compared with the same period one year ago; however, the quarter-to-quarter momentum was positive.
  • The largest declines in public construction were in office buildings, public education, public safety, amusement and recreation, and conservation and development.
  • Small declines were evident in public healthcare buildings.
  • Gains in public construction occurred in the categories of transportation facilities, public power, street and highways, sewage and waste disposal, and water supply.
  • State and local government receipts from taxes and federal transfers will be up 3 percent in 2013. We forecast 4 percent growth in 2014 and 5 percent gains in 2015. A moderate pace of economic expansion will generate higher personal tax receipts and a rebound in business income tax payments. Federal grants-in-aid for Medicaid will get a large boost from the implementation of the Affordable Care Act in 2014.

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