U.S. Industrial Outlook: Growth Decelerates in 2015

Wednesday, June 10, 2015

U.S. Industrial Outlook: Growth Decelerates in 2015


Need to Know . . .

  • We forecast manufacturing production growth of 2.5% this year (after 3.5% growth in 2014)
  • The relatively slow rebound in economic activity following the weather-related downturn is symptomatic of less growth momentum this year
  • Consumers are cautious and risk-averse; they used much of their windfall oil savings to pay down debt, muting the positive impact on the economy

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Summary of Findings and Forecasts

Manufacturing industrial production fell at a 1.0% annual rate in the first quarter of 2015—faster than the 0.7% pace of decline in the overall economy. Production activity fell sharply in January and February, primarily because of the severe winter weather across much of the nation. The record cold temperatures and snowfall disrupted construction, transportation, trade, and commercial activity, making the severe winter of 2015 a repeat performance of 2014. What is different this year is that manufacturing activity has not aggressively bounced back in the spring.

Manufacturing production fell 0.6% in January, dropped 0.2% in February, rebounded 0.3% in March, and was flat in April. The relatively slow rebound in economic activity following the weather-related downturn is symptomatic of less growth momentum this year. The West Coast dockworkers slowdown had a more disruptive impact the longer it remained unresolved, reducing exports and delaying the delivery of components to some manufacturers.

Importantly, several positive factors driving growth last year have since changed, lowering manufacturing growth potential for the year:

  • The rapid declines in oil and natural gas prices were beneficial to energy users but caused a similarly rapid decline in investment in energy drilling, exploration, and the material supply chain.
  • The sudden rise in the value of the dollar hurts our trade competitiveness. The U.S. economy is growing faster than most advanced economies and our central bank has ended quantitative easing and is talking about raising interest rates while other nations’ central banks are beginning quantitative easing. More U.S. spending goes to imports as our export growth slows, weakening domestic production growth.
  • A large inventory buildup this winter drove the inventory to sales ratio to unwanted highs, contrasting with last year’s lean inventories. An inventory drawdown should subtract 1.1 percentage points from growth in the second quarter of 2015 versus adding 1.4 percentage points in the second quarter of 2014.
  • Consumers are cautious and risk-averse. They used much of their windfall oil savings to pay down debt, muting the positive impact on the economy. The ramping up of housing starts is also below expectations.

The forecast for manufacturing production growth in 2015 is lower than previously expected. Three months ago, we expected growth of 3.7% in 2015. Now we forecast 2.5% growth for the year, following manufacturing production growth of 3.5% in 2014. Many of the adverse shocks that are slowing growth this year will be absorbed and will not hold down 2016 growth. With a return to a normal winter next year, manufacturing production should get a boost, posting 4.0% growth before decelerating to 3.1% growth in 2017.

High-tech production (computer and electronic products) posted 4.5% growth in 2014 and should grow 4.7% in 2015, 9.1% in 2016, and 8.3% in 2017.

Table 1 – MAPI Foundation Forecast for Manufacturing Production

Source(s): MAPI Foundation

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

  • Housing will recover at a slower pace than we previously expected. The 2015-2017 growth rates will favor single-family starts, while multi-family starts will grow at a slower pace after many years of leading the housing recovery. The housing supply chain (wood products, nonmetallic mineral products, HVAC, household appliances, furniture, and construction machinery) is ramping up.
  • Motor vehicles and parts production growth will be strong again this year because the gasoline price windfall offsets rising consumer caution. We expect production growth to slow in 2016-2017 as pent-up demand dissipates.
  • The commercial and industrial construction segments are leading nonresidential construction activity. Public works construction will grow at a slow rate and electric utility and institutional buildings will decline.
  • Transportation equipment will lead the sector’s growth. The ramping up of aerospace production will offset most of the deceleration in motor vehicles, marine, and railroad equipment production. Defense cuts will restrain what could have been very robust aerospace growth.
  • Wellness programs, the shifting of more of the first dollar medical costs to consumers, and the consolidation of healthcare providers should slow the rate of growth in medical equipment and supplies production from double the average growth in manufacturing to merely average.
  • We continue to expect a rebound in long-declining pharmaceutical production. Growth is resulting from new products coming on the market and fewer products losing patent protection.
  • Mining and drilling equipment production will decline 13% in 2015 and 18% in 2016.
  • Machinery production posted strong growth last year but is expected to decelerate to about average growth within manufacturing. Agricultural equipment and drilling equipment will decline this year and next, with most other forms of equipment posting slower growth. The exception is industrial machinery and HVAC to equip the surge in new factory construction this year.
  • We pushed back the expected acceleration in the high-tech industry from this year to next because of the cautious business spending environment.
  • Slower manufacturing growth and the strong dollar will significantly hurt the metals industries. Steel production is now expected to decline and aluminum production will be flat.

Table 2 – MAPI Foundation Forecasts for Manufacturing and Related Production

Source(s): MAPI Foundation

Industries in the Current Business Cycle
The pairs of figures for each of the 27 industries analyzed in this report show annual levels of activity and monthly rates of change. Forecasts of physical production are shown through 2017. 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); this measure illustrates the cyclical position of each industrial sector.

Figure 1 – Industrial Sector by Phase of Cycle, May 2015

Source(s): MAPI Foundation

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

Figures 2a & 2b

F=Forecast
Source(s): U.S. Bureau of the Census and MAPI Foundation

Housing starts (Figures 2a and 2b)

  • Housing starts should increase 10% to 1,096,000 units in 2015, 19% to 1,304,000 units in 2016, and 12% to 1,458,000 units in 2017.
  • The Case-Shiller housing price index was up 12% in the first quarter compared with the previous quarter and was 5% above the previous year.
  • The severe winter depressed housing. In the three months ending April 2015, new home sales were 1% above year-ago levels but down 22% at an annual rate from the previous three months.
  • The inventory of new homes was 4.8 months of supply in April 2015, indicating relatively tight supply, and was down from 5.1 months in April 2014.
  • The Federal Reserve has stopped adding mortgage-backed securities to its balance sheet but is replacing those that mature. The withdrawal of Fed purchases does not seem to be having an adverse effect on mortgage rates. In late May, mortgage rates remained at 3.9%, the same as at the beginning of this year.
  • In the first quarter of 2015, the combined percentage of all mortgage loans in foreclosure or delinquent was 7.8%; the rate is down to 2007 levels.

Figures 3a & 3b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • Motor vehicles and parts production is expected to increase 7% in 2015, 6% in 2016, and 3% in 2017. Auto and light truck sales should be 16.9 million units in 2015, 17.4 million units in 2016, and 17.9 million units in 2017.
  • Overall production was up 5% in the three months ending April 2015 compared with the same period one year ago. Production was up 3% for automobiles and 4% for light trucks and utility vehicles. Auto parts production increased 5% over year-ago levels.
  • Heavy-duty truck production increased 14% in the three months ending April 2015 over the same period one year ago; truck trailer production rose 25%.
  • Heavy-duty truck production should see growth of 10% in 2015 and 7% in 2016 before declining 2% in 2017.
  • The production of campers and travel trailers rose 5% in the three months ending April 2015 over the same period one year earlier; big-ticket motor home production also increased 5%.
  • Motor vehicles and parts imports were up 7% while exports fell 3%. The industry’s import to export ratio is 2.5, so the sizable trade deficit was $5.4 billion more negative in the first quarter of 2015 compared with one year earlier.

Figures 4a & 4b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Household appliance production (Figures 4a and 4b)

  • The forecast for household appliance production is for growth of 2% in 2015, 5% in 2016, and 4% in 2017.
  • Production grew 5% in the three months ending April 2015 compared with the same period one year ago; production of small appliances was up 8% and large appliances increased 5% (the production value of major appliances is twice as large as that of small appliances). The momentum indicator, relating production from February to April 2015 to that of the previous three months, shows production declined at a 4% annual rate.
  • Existing home sales fell 3% in April 2015 from one year earlier. Severe weather and lagging supply relative to demand put upward pressure on prices and depressed home sales.
  • Household appliances’ import to export ratio is 5.2—one of the highest adverse trade ratios in manufacturing. Household appliance imports increased 9% while exports fell 5%; the trade deficit was $460 million more negative in the first quarter of 2015 compared with one year ago.

Figures 5a & 5b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • Pharmaceutical and medicine production should increase 2% in 2015, 5% in 2016, and 4% in 2017.
  • Production rose 2% in the three months ending April 2015 compared with the same period one year ago but the recent quarter-to-quarter momentum fell at a 2% annual rate.
  • Growth drivers include new product launches and new spending for innovative treatments; further, fewer patents are expiring than in the past few years.
  • IMS Institute reports that last year, patients had 3.0% fewer office visits and 1.7% fewer hospital admissions but filled 2.1% more prescriptions.
  • Employment in pharmaceuticals and medicine was up 1% in the first quarter of 2015 compared with the same period one year earlier. There was a 1% gain in pharmaceuticals and 3% growth in miscellaneous medicinal and biologicals employment.
  • The implementation of the Affordable Care Act has enough scale to become an entitlement. The individual mandate and tax subsidies have increased access for tens of millions of people to drug treatments.
  • Pharmaceutical imports rose 16% while exports expanded 15%. The import to export ratio is 1.8, so the already large trade deficit was $1.5 billion more negative in the first quarter of 2015 compared with one year earlier.

Figures 6a & 6b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • Iron and steel production is forecast to decline 9% in 2015, increase 4% in 2016, and grow 5% in 2017.
  • Output fell 12% in the three months ending April 2015 versus the same period one year ago. Compared with November to January, the production momentum fell at a 45% annual rate.
  • Capacity utilization in the U.S. steel industry was 72% in the week of May 30, 2015 (lower than the 77% in the same week one year earlier). The steel industry has a much lower factory utilization rate than overall manufacturing.
  • U.S. durable goods manufacturing industries’ momentum fell 4% during February to April 2015 compared with November to January; these are predominantly steel-intensive industries.
  • Steel production was flat in Europe (28 countries), rose 5% in Russia, and fell 6% in Korea in the three months ending April 2015 compared with year-ago levels. China’s steel production was unchanged but Taiwan’s was up 7%. Steel production in Brazil dropped 1%.
  • Steel product imports rose 17% while exports fell 5%. Steel’s import to export ratio is 3, so the trade deficit was $1.9 billion more negative in the first quarter of 2015 compared with one year ago.

Figures 7a & 7b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • Alumina and aluminum production should be unchanged in 2015 before rising 3% in 2016 and 5% in 2017.
  • Production was up 3% in the three months ending April 2015 compared with the same period one year ago. Primary aluminum production fell 6% from year-ago levels. Fortunately, production of aluminum sheet, plate, and foil and extruded products, which account for 89% of the industry, increased 4%.
  • Production in aluminum-using industries was positive: truck trailer production rose 25%, light truck and vehicle production rose 4%, and aerospace production grew 4% from February to April 2015 compared with year-ago levels.
  • The Metals Service Center Institute reported that aluminum product shipments from U.S. metals services centers rose 1% in April 2015 versus the same month one year ago.
  • Alumina and aluminum production and processing imports rose 20% while exports fell 2%. Alumina and aluminum’s import to export ratio is 2, so the trade deficit was $630 million more negative in the first quarter of 2015 compared with one year earlier.

Figures 8a & 8b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • Fabricated metals production should post moderate gains of 3% in 2015, 2016, and 2017.
  • Production was up 3% in the three months ending April 2015 relative to the same period one year ago, although the quarter-to-quarter momentum was moderately negative.
  • Most types of fabricated metal products saw production increases relative to one year ago. Forging and stamping was up 9%, architectural and structural metals rose 8%, and coating, engraving, and heat treating rose 4% in the three months ending April 2015 relative to the same period one year ago. Machine shop turned products and fasteners fell 1%, however.
  • Fabricated metal products imports increased 7% and exports fell 3%. Fabricated metal products’ import to export ratio is 1.5, so the trade deficit was $1.5 billion more negative in the first quarter of 2015 compared with one year earlier.

Figures 9a & 9b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Basic chemicals production (Figures 9a and 9b)

  • Basic chemicals production should increase 2% in 2015, 3% in 2016, and 5% in 2017.
  • Overall production was up 2% in the three months ending April 2015 compared with the same period one year ago and the quarter-to-quarter momentum was a positive 2%.
  • Petrochemical and other organic chemicals production was unchanged in the three months ending April 2015 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 rose 7% in the three months ending April 2015 compared with the same period one year ago. The growth 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% in the first 20 weeks of 2015 versus year-ago levels.
  • Basic chemicals imports were down 20% while exports declined 6%. Basic chemicals’ import to export ratio is 0.9, so the trade account grew $2.2 billion more positive in the first quarter of 2015 relative to one year earlier.

Figures 10a & 10b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Paper production (Figures 10a and 10b)

  • Paper production should fall 1% in 2015 and increase 1% in both 2016 and 2017.
  • Production fell 1% in the three months ending April 2015 compared with the same period one year ago. A more short-term (quarter-to-quarter) analysis reveals negative 6% production momentum.
  • In a related sector, industrial production of food products was up 2% in the three months ending April 2015 compared with year-ago levels.
  • A report from the American Trucking Association indicated that truck tonnage increased 1% in April 2015 from one year ago.
  • Paper imports increased 2% while exports declined 1%. The import to export ratio is 0.9 in the paper industry; the trade surplus was $150 million less positive in the first quarter of 2015 compared with one year earlier.

Figures 11a & 11b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Construction machinery production (Figures 11a and 11b)

  • Construction machinery production should increase 2% in 2015, 3% in 2016, and 2% in 2017.
  • Production rose 10% during February to April 2015 versus the same period one year earlier. The quarter-to-quarter momentum was very strong.
  • Private nonresidential construction activity expanded 8% and public works construction grew 2% in the three months ending April 2015 compared with the same period one year ago.
  • Logging production fell 1% from February to April 2015 versus one year ago.
  • Mining and quarrying production fell 4% in the three months ending April 2015 compared with the same period one year ago. There was growth in quarrying but production declines in precious and nonferrous metal mining and coal mining.
  • Construction equipment’s import to export ratio was 1.6 in the three months ending April 2015. Imports rose 17% but exports declined 17%; the small trade deficit became $1.4 billion more negative in the first quarter of 2015.
  • Caterpillar reports that their worldwide machine deliveries to users for retail sales, adjusted for inflation, were down 11% in the three months ending April 2015 versus the same period one year earlier. Construction industries’ sales were down 12% and resources industries’ equipment fell 9%.

Figures 12a & 12b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • Mining and oil and gas field machinery production is predicted to decline 13% in 2015, fall 18% in 2016, and then grow 12% in 2017.
  • Production fell 2% in the three months ending April 2015 compared with one year earlier and the quarter-to-quarter momentum was very negative.
  • WTI oil prices were $60 in late May, which is up from the mid-40s during the third week of March. A price of $50 is thought to be the approximate breakeven point for shale oil drilling, so the supply chain will decline but not collapse.
  • The Energy Information Administration projects that coal production will fall 7% in 2015 and will be unchanged in 2016.
  • Gold and silver mining in the United States fell 3% in the three months ending April 2015 compared with the same period one year earlier.
  • Oil and gas well drilling production fell 35% in the three months ending April 2015 compared with 2014. Recent momentum in the drilling market is very negative.
  • Mining and oil and gas field machinery production is very export-oriented—the import to export ratio is only 0.3. Imports increased 9% while exports fell 8%; the trade surplus was $280 million less positive in the first quarter of 2015 compared with one year earlier.

Figures 13a & 13b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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 should grow 11% in 2015, 4% in 2016, and 3% in 2017.
  • Production increased 4% in the three months ending April 2015 compared with the same period one year earlier but the momentum indicator was negative.
  • In related sectors, wood products production rose 3%, paper production fell 1%, textile mill production rose 11%, food production increased 2%, and plastic products production expanded 7% from February to April 2015 compared with the previous year.
  • The Semiconductor Equipment Association reported that equipment bookings in the three months ending April 2015 were 9% higher than in the same period one year earlier.
  • Construction of new manufacturing plants increased 47% (in inflation-adjusted dollars) in the three months ending April 2015 from one year ago.
  • Industrial machinery imports were down 2% while exports fell 3% in the first quarter of 2015 compared with one year ago. The industrial machinery industry is export-oriented, with a 0.8 import to export ratio. The trade surplus declined $50 million in the first quarter of 2015 relative to the same period last year.

Figures 14a & 14b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • HVAC production growth is forecast to be 8% in 2015, 3% in 2016, and 4% in 2017.
  • Production rose 8% in the period of February to April 2015 on a year-over-year basis but the quarter-to-quarter momentum was negative.
  • In related sectors, construction spending for home improvement fell 30% but inflation-adjusted private nonresidential construction rose 8% in the three months ending April 2015 versus one year ago.
  • Construction related to refrigeration has been positive. Inflation-adjusted food manufacturing construction rose 32% and inflation-adjusted food store construction was flat in the three months ending April 2015 versus one year ago.
  • HVAC has an import to export ratio of 1.8. Imports increased 3% while exports rose 1%. The trade deficit was $100 million more negative in the first quarter of 2015 compared with one year earlier.

Figures 15a & 15b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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).
  • We predict that metalworking machinery production will increase 2% in 2015, 5% in 2016, and 4% in 2017.
  • Production rose 3% in the three months ending April 2015 over year-ago levels but the quarter-to-quarter momentum was down 6%.
  • The U.S. Census Bureau reported that metalworking machinery orders (in dollars) grew 12% in the three months ending April 2015 on a year-over-year basis.
  • Metalworking machinery imports were unchanged and exports increased 7% in the first quarter of 2015 compared with one year earlier. The import to export ratio is 2.6, so the trade deficit was $90 million less negative in the first quarter of this year versus one year ago.

Figures 16a & 16b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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 should increase 11% in 2015 and 3% in both 2016 and 2017.
  • Production grew 7% in the three months ending April 2015 compared with the same period one year earlier but the quarter-to-quarter momentum was very negative.
  • Heavy-duty truck production was up 14% and the production of ships and boats was up 5% in the three months ending April 2015 over year-ago levels. The growth in marine construction occurred in both shipbuilding/repairing and boatbuilding. Ship and boat production is predicted to grow 3% in 2015, gain 1% in 2016, and fall 1% in 2017.
  • Gas turbines are used for electric peaking generation. Electric power construction spending fell 43% in the three months ending April 2015 versus the same period one year ago.
  • Turbines compress gas in pipelines and power oil and gas well drilling. Pipeline and storage construction increased 47% in the three months ending April 2015 versus the same period one year ago, although oil and gas drilling in the United States fell 35%.
  • The American Wind Energy Association reported that during the first quarter of 2015, 131 megawatts of wind turbines were installed—a reduction from the 217 megawatts installed one year earlier. Both periods were certainly influenced by the severe winter weather. A wind tax credit was available for projects that started in 2013; as a result, a record number of projects are under construction to be completed over the next few years.
  • Engine, turbine, and power transmission equipment imports increased 6% and exports were unchanged. The industry has a 0.9 import to export ratio and thus the trade surplus was $330 million less positive in the first quarter of 2015 relative to a year ago.

Figures 17a & 17b

Source(s): U.S. Bureau of the Census and MAPI Foundation

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.
  • In the three months ending April 2015, inflation-adjusted material handling orders were down 1% compared with one year earlier.
  • The construction of buildings where elevators and escalators could be used is growing again. Inflation-adjusted construction of private and public buildings was up 13% in the three months ending April 2015 versus the same period one year ago.
  • Warehousing and storage employment was up 4% in the three months ending April 2015 versus the same period one year earlier.
  • Material handling equipment imports increased 15% while exports fell 1%. The industry’s import-to-export ratio is 1.2, so the trade deficit turned $240 million more negative in the first quarter of 2015 from one year earlier.

Figures 18a & 18b

Source(s): U.S. Bureau of the Census and MAPI Foundation

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

  • The MAPI Foundation does not forecast electronic computer equipment shipments.
  • Computer shipments fell 11% in the three months ending April 2015 compared with one year earlier. Electronic computer prices declined 5%.
  • Electronic computer imports fell 1% while exports dropped 3%. With a large import to export ratio of 4.4, the huge trade deficit was $130 million less negative in the first quarter of 2015 compared with one year earlier.

Figures 19a & 19b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Communications equipment production and 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.
  • We predict that communications equipment production will increase 5% in 2015, 6% in 2016, and 5% in 2017.
  • Production fell 2% in the period of February to April 2015 compared with one year ago.
  • Construction spending for communications infrastructure (in current dollars) declined 9% in the three months ending April 2015 versus one year ago.
  • Defense communications are about one-tenth of the communications equipment market; new orders (in current dollars) in this area rose 17% in February to April 2015 from one year ago. Civilian communications equipment orders declined 7%.
  • Employment indicators show that the production of alarms, signaling equipment, and safety detectors declined sharply in the first quarter of 2015 from one year earlier.
  • The communications equipment industry is very dependent on imports from contract manufacturing plants in Asia. With an import to export ratio of 5.6, domestic production accounts for only a small proportion of domestic consumption. Imports increased 13% while exports rose 3% in the first quarter versus one year ago. The very large trade deficit was $2.8 billion more negative in the first quarter of 2015 compared with one year ago.

Figures 20a & 20b

Source(s): Semiconductor Industry Association and MAPI Foundation

Semiconductors (Figures 20a and 20b)

  • World semiconductor revenues are forecast by World Semiconductor Trade Statistics, an association of semiconductor companies, to grow 3% in 2015, 2016, and 2017.
  • Shipments rose 6% in the three months ending April 2015 compared with one year ago and prices fell 1%.
  • Automotive and wireless communications are projected to grow at a stronger pace than the total market; however, consumer and computer markets for semiconductors are predicted to remain almost flat, according to WSTS.
  • With an import to export ratio of 2, the U.S. is a net importer of semiconductors. Imports rose 7% and exports were up only 1%; the sizable trade deficit was $1.1 billion more negative in the first quarter of 2015 compared with one year earlier.

Figures 21a & 21b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • Instrument industry production should grow 5% in 2015, 4% in 2016, and 3% in 2017.
  • Instrument production was up 4% in the three months ending April 2015 compared with one year ago.
  • Search and navigation shipments (in current dollars) rose 3% in the three months ending April 2015 compared with one year ago; defense search and navigation shipments gained 1% and nondefense shipments rose 7%.
  • The electromedical industry’s output rose very rapidly in the first quarter of 2015. An aging population, more medical tests, and the expansion in health insurance coverage are driving this growth. 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. In the first quarter of 2015, industry employment fell 1% compared with one year earlier. Overall manufacturing production is growing (year over year) at a moderate pace, there is moderate growth in factory machinery investment, and manufacturing plant construction is exceptionally strong.
  • Instruments for measuring and testing electricity and electrical signals are losing jobs. In the first quarter of 2015, industry employment fell 3% compared with one year earlier. 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 have an import to export ratio of 1.3. Imports increased 7% while exports fell 5%; the trade deficit was $1.4 billion more negative in the first quarter of 2015 compared with one year earlier.

Figures 22a & 22b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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 will increase 4% in 2015, 5% in 2016, and 6% in 2017.
  • Production increased 4% in the three months ending April 2015 compared with one year ago; the quarter-to-quarter momentum was slightly negative.
  • In related sectors, inflation-adjusted residential construction spending declined 4% in the three months ending April 2015 from year-ago levels while nonresidential construction of buildings was up 13%.
  • An import to export ratio of 6.6 makes electric lighting equipment one of the most adverse trade ratios in manufacturing. Imports increased 19% while exports fell 1% in the first quarter of 2015 compared with one year earlier. The trade deficit was $500 million more negative than one year ago.

Figures 23a & 23b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Electrical equipment production (Figures 23a and 23b)

  • This sector consists of transformers, motors and generators, switchgear, relays, and industrial controls.
  • Electrical equipment production is forecast to grow 5% in 2015, 4% in 2016, and 3% in 2017.
  • Production was up 7% in the three months ending April 2015 compared with one year ago, with strong positive momentum.
  • The factory operating rate is at a moderate level, having slipped from 78% in December 2014 to 77.2% in April 2015. The severe winter cut production and consequently the factory utilization rate.
  • Relay and industrial controls production appears to be growing at a very strong pace. Employment in the industry was up 2% in the first quarter of 2015 relative to one year earlier in an industry that has large productivity gains. Furthermore, manufacturing construction activity is booming.
  • Electric motors and generators provide power for many machinery and transportation applications, while generators convert motion into electricity for residential, utility, and industrial uses. First quarter production grew at a strong pace.
  • Transformers and power distribution equipment tend to follow electric utility construction, the creation of new communities, and a replacement cycle; housing starts were up 1% in the three months ending April 2015. Electric power construction, however, declined sharply. Nevertheless, employment in the transformer industry was unchanged in the first quarter of 2015 compared with one year earlier.
  • Switchgear and switchboard apparatus production is growing at a slow rate. Industry employment fell 2.4% in the first quarter.
  • Electrical equipment imports were unchanged while exports were up 4%. The industry’s import to export ratio is 1.8, so the strength of exports pushed the trade deficit $150 million less negative in the first quarter of 2015 compared with one year ago.

Figures 24a & 24b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • This category encompasses surgical and medical instruments, surgical appliances and supplies, and dental laboratories.
  • Medical equipment production is forecast to increase 3% in 2015, 2% in 2016, and 4% in 2017.
  • Production increased 2% in the three months ending April 2015 compared with year-ago levels.
  • Surgical and medical instruments employment fell 1% in the first quarter but surgical appliances and supplies employment increased a very strong 6%.
  • Production for safety equipment and supplies and the “all other” group that includes lab equipment and hospital furniture, dental equipment and supplies, and vision care goods sharply declined since employment in the industry dropped 7% in the first quarter.
  • Dental laboratories industry employment fell 3% in the three months ending March 2015.
  • Medical equipment and supplies imports increased 8% while exports increased 2%. With an import to export ratio of 1.2, the strong growth in imports pushed the trade deficit $470 million more negative in the first quarter of 2015 compared with one year earlier.

Figures 25a & 25b

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

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

  • Aerospace products and parts production should increase 3% in 2015, 8% in 2016, and 7% in 2017.
  • In the three months ending April 2015, production was up 4% compared with one year ago, with positive momentum.
  • Boeing reported 110 net orders for new commercial airplanes in the first quarter of 2015 and delivered 184 (up 14% from a year earlier). Boeing delivered 723 commercial airplanes in 2014 and they expect 753 deliveries in 2015, a 4% increase.
  • U.S. airline traffic—measured in revenue passenger miles—rose 2.9% in the three months ending February 2015 versus one year ago.
  • The International Air Transport Association (IATA) says that world passenger traffic rose 7% in March 2015 versus a year ago and world freight traffic grew 2%.
  • Defense aerospace contracts are very long term and military austerity is baked into short-term production activity. Defense aerospace shipments (in current dollars)—about one-third of the total industry—were down 6% in the three months ending April 2015 versus one year ago. Civilian aircraft and parts shipments rose 21% in this time frame.
  • With an import to export ratio of 0.5, aerospace is the largest net exporter in U.S. manufacturing. Imports increased 6% while exports grew 10% in the first quarter of 2015, and the trade surplus was $1.8 billion more positive relative to one year earlier.

Figures 26a & 26b

Source(s): Federal Reserve Board and MAPI Foundation

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

  • The MAPI Foundation does not forecast drilling production; however, it is clear that drilling activity will decline substantially over the next couple of years as a result of the recent collapse in oil prices.
  • Drilling activity declined 35% in the three months ending April 2015 relative to one year ago and has sizable negative momentum.
  • Brent oil plummeted from $113 in June 2014 to $62 per barrel in late May 2015. Henry Hub natural gas declined from $4.60 in June 2014 to $2.83 per million cubic feet in late May 2015. Rising oil and gas output in the United States is the major reason for lower prices. On the global market, Libya started selling oil again last year while other oil producers were expanding production. When the Saudis refused to cut production in November, oil prices plummeted.
  • Baker Hughes reported that the North American rig count fell 51% in May 2015 versus the same month one year ago.
  • 74% of operating U.S. rigs looked for oil in late May. The U.S. rig count for oil drilling was down 56% in May 2015 versus the same period one year ago. The U.S. rig count for natural gas drilling was down 30% in the same period.

Figures 27a & 27b

F=Forecast
Source(s): U.S. Bureau of the Census and MAPI Foundation

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

  • We predict that inflation-adjusted nonresidential spending will increase 2% in 2015, 6% in 2016, and 8% in 2017.
  • Nonresidential construction was up 8% in the three months ending April 2015 versus year-ago levels.
  • There was very strong construction growth in lodging (hotels), office buildings, commercial, transportation, manufacturing plants, amusement and recreation, and oil and gas pipeline and storage in the three months ending April 2015. Small declines in activity occurred in private education and religious construction. Large declines were in communications and electric utility construction.
  • Construction spending for factories, adjusted for inflation, rose 47% during February to April 2015 from one year ago. The strongest growth was in food, chemicals, transportation equipment, nonmetallic minerals, and plastics and rubber. Computers and electronics posted a large decline. We forecast that industrial construction will grow 23% in 2015, fall 11% in 2016, and decline 14% in 2017.
  • Private electric power construction is falling at a fast pace because of overcapacity.
  • The architectural and engineering firm billing index—a leading indicator—peaked in July 2014 at 55.1 and has been gradually declining. Since January 2015, the index has cycled slightly below and above 50, the breakeven level. In April 2015, the billing index was 48.8, a disappointing reading. Severe winter weather explains the weakness. Nevertheless, architectural and engineering employment is robust, up 4% in the three months ending April 2015 versus one year ago.

Figures 28a & 28b

F=Forecast
Source(s): U.S. Bureau of the Census and MAPI Foundation

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 should be up 1% in 2015, 2% in 2016, and 1% in 2017.
  • Public works construction was up 2% in the three months ending April 2015 compared with the same period one year ago but the quarter-to-quarter momentum was negative.
  • Areas of strong growth in the last three months were amusement and recreation, sewerage and waste disposal, and conservation and development.
  • Recent large declines in public construction were in healthcare, public safety, and power.
  • State and local government receipts from taxes and federal transfers will be up 4% in 2015 and 5% in 2016 and 2017. A modest pace of economic expansion will generate higher personal tax receipts and production taxes. Federal grants-in-aid for Medicaid get a large boost from the Affordable Care Act.