U.S. Industrial Outlook: Growth Mode

Tuesday, September 9, 2014

U.S. Industrial Outlook: Growth Mode 


Need to Know . . . 

  • Manufacturing production is forecast to grow 3.4% in 2014, 4.0% in 2015, and 3.6% in 2016 
  • Growth drivers are energy infrastructure, the housing supply chain, transportation infrastructure, medical care expansion, widespread growth abroad, and less domestic policy uncertainty 
  • Manufacturing will continue to grow faster than the overall economy 

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 July 2014 and provides our forecasts, completed in mid-August 2014. 

Production declined very sharply in January (particularly because of weather) but rebounded dramatically in February, more than offsetting the January decline. Manufacturing industrial production increased at a 5% annual rate in the three months ending July 2014. Production activity from March through July was exceptionally strong in light of the sluggish GDP growth so far this year. For example, inflation-adjusted GDP increased at a 0.9% annual rate in the first half of 2014. Manufacturing production, however, grew at a 4% annual rate.

The manufacturing outlook for 2014 and 2015 calls for an acceleration in the growth rate each year. In addition, manufacturing will continue to grow faster than the overall economy. The proximate cause for faster industrial growth is that demand has shifted toward manufactured goods. Durable goods, equipment, and construction have long lives and therefore are temporarily postponable, especially during economic downturns and times of uncertainty. Consumers and firms sit on the sidelines until the goods wear out, growth necessitates additional capacity, and/or confidence returns. Motor vehicle sales and housing starts are traditional bellwethers for consumer durables–driven manufacturing. We expect auto sales to increase 5% in 2014 and 3% in 2015. Housing starts should grow 10% this year and 29% in 2015, and this growth will accelerate purchases of appliances and other household goods. The rebound in big-ticket consumer spending is supported by steady employment gains, households’ low debt burdens, and rising consumer wealth (a factor of higher stock and home prices).

Business investment responds to the ability to borrow and the need for capacity. Firms have lots of cash and are profitable, and falling unemployment indicates higher utilization rates. Further, several growth themes create an incentive for investment. The energy infrastructure for unconventional oil and natural gas has revived domestic drilling and the need for distribution pipelines and terminals. Residential and nonresidential construction are rebounding, and both have extended supply chains that include many manufactured goods.

The needs for new capacity and replacement cycles have converged for all types of transportation equipment—autos, trucks, airplanes, ships, and railroad. An aging population has accelerated the demand for medical care, including medical supplies and equipment. Furthermore, the manufacturing industry itself is attracting significant investment in machinery and structures thanks to the faster pace of growth and widening backlogs driven by the above themes. The acceleration in investment-driven and consumer-driven manufacturing will underpin an acceleration in material industries production.

Manufacturing production is forecast to grow 3.4% in 2014, 4.0% in 2015, and 3.6% in 2016.

High-tech production (computers and electronic products) should grow 4.7% in 2014, 8.5% in 2015, and 10.4% in 2016. Non-high-tech or traditional manufacturing, which accounts for the vast bulk of value-added in the sector, will grow 3.2% in 2014, 3.8% in 2015, and 3.2% in 2016.

Table 1 – 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 forecasts shown in Table 2:

  • The level of housing starts is well below what the fundamentals suggest is needed. Multi-family housing starts will account for most of the growth in starts this year. Single-family starts should accelerate and lead housing activity in 2015 and 2016. Homebuilding particularly helps wood products, nonmetallic mineral products, HVAC, household appliances, furniture, and construction machinery.
  • Motor vehicles and parts production will grow faster than the average for the manufacturing sector this year and next; however, the industry is converging on its potential trend level of demand and should flatten out in 2016.
  • Growth drivers are energy infrastructure, the housing supply chain, transportation infrastructure, medical care expansion, widespread growth abroad, less domestic policy uncertainty, and increasing confidence that will boost business investment. The pace of business equipment production should accelerate and be the major source of manufacturing growth.
  • Oil prices should be reasonably stable and stay high enough to encourage more drilling. The severe winter caused a spike in natural gas prices this year that unwound in the spring. Natural gas prices will remain relatively low and drift upward. Mining and drilling equipment production will post strong growth during 2014 to 2016.
  • Growth in the high-tech semiconductor industry is accelerating this year but should moderate in the coming years. The acceleration in motor vehicle electronics has given semiconductors a boost.
  • Medical equipment production will continue to post solid growth thanks to aging trends and the Affordable Care Act bringing more people under coverage. We expect weak gains in pharmaceutical production this year. The growth rate will improve over time as new products come on the market.
  • 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 are likely but peace may be elusive.
  • Private nonresidential construction will benefit from acceleration in commercial and industrial structures, particularly in 2015 and 2016. Utility construction surged this year but should wane in 2015 and 2016.
  • Public construction activity, held back by austerity, will post modest growth in 2014 to 2016.

Table 2 – 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 the annual level of activity over the last nine years and the monthly rate of change since July 2005. Forecasts of physical production are shown through 2016. 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.

Figure 1 – Industrial Sector by Phase of Cycle, August 2014

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 1,020,000 units in 2014, 29% to 1,312,000 units in 2015, and 18% to 1,544,000 units in 2016.
  • The Case-Shiller housing price index was up 8% in the second quarter compared with the previous quarter and was 11% above the previous year.
  • In the three months ending July 2014, new home sales were 2% above year-ago levels and up sharply from the previous three months.
  • The inventory of new homes was 6.0 months of supply in July 2014, up from 5.0 months in January 2014.
  • Additional rounds of Federal Reserve tapering of mortgage-backed securities purchasing do not seem to be having much effect on mortgage rates. Tapering is close to ending new purchases, but in late August, mortgage rates eased to 4.1% from 4.5% at the beginning of the year. The forecast is for the Fed to end all new purchases of mortgage-backed securities by year’s end.
  • In the second quarter of 2014, the combined percentage of all mortgage loans in foreclosure or delinquent was 8.53%; the rate was at its lowest level since the fourth quarter of 2007.

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 2014 and 5% in 2015, but be unchanged in 2016. Auto and light truck sales should be 16.3 million units in 2014, 16.8 million units in 2015, and 17.1 million units in 2016.
  • Overall production was up 12% in the three months ending July 2014 compared with the same period one year ago. Production was up 7% for automobiles and 21% for light trucks and utility vehicles. Auto parts production increased 9% over year-ago levels.
  • Heavy-duty truck production increased 17% in the three months ending July 2014 over the same period one year ago; truck trailer production rose 15%.
  • Heavy-duty truck production should see growth of 15% in 2014 and 9% in 2015, but decline 6% in 2016.
  • Production of campers and travel trailers rose 6% in the three months ending July 2014 over the same period one year earlier; big-ticket motor home production increased 17%.
  • Motor vehicles and parts imports were up 7% while exports were up only 3%; the large trade deficit was more negative in the second quarter of 2014 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 6% growth in 2014, 6% growth in 2015, and 4% in 2016.
  • Production grew 8% in the three months ending July 2014 compared with the same period one year ago; small appliance production increased 12% and large appliance production increased 8% (the production value of major appliances is twice as large as that of small appliances). The momentum indicator, relating production from May 2014 to July 2014 to that of the previous three months, shows production accelerating at a 29% annual rate.
  • Existing home sales increased more than 2% in July 2014 from one year earlier. Moderate job growth and more inventory on the market have been helping home sales recently.
  • Household appliance imports increased 8% while exports fell 4%; the trade deficit was more negative in the second quarter of 2014 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 1% in 2014, 2% in 2015, and 3% in 2016.
  • Production rose 1% in the three months ending July 2014 compared with the same period one year ago and the recent quarter-to-quarter change grew at a 4% 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 starting to replace the losses with other blockbusters.
  • Employment in pharmaceuticals and medicines was up a strong 2.5% in the second quarter of 2014 compared with the same period one year ago. The growth is largely due to an 8% increase in miscellaneous medicinal and biologicals employment.
  • Implementation of the Affordable Care Act has achieved its initial goal for enrollment and seems to have enough scale to become an entitlement. The individual mandate will increase access for tens of millions of people to drug treatments.
  • Pharmaceutical imports rose 7% while exports expanded 2%; the trade deficit was larger in the second quarter of 2014 compared with one year ago.

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 increase 1% in 2014, 7% in 2015, and 4% in 2016.
  • Output was up 4% in the three months ending July 2014 versus the same period one year ago. Compared with February 2014 to April 2014, the production momentum accelerated at a 20% annual rate.
  • Capacity utilization in the U.S. steel industry was 80% in the week of August 16, 2014 (up from 78% in 2013), a higher factory utilization rate than for overall manufacturing.
  • U.S. durable goods manufacturing industries’ momentum was up 10% during May to July 2014 compared with February to April 2014; these are predominantly steel-intensive industries.
  • Steel production was up 1% in Europe (28 countries), 10% in Korea, and 6% in Russia in the three months ending July 2014 compared with year-ago levels. China’s steel production rose only 6% and Taiwan’s steel production was up 2%.
  • Steel product imports rose 26% while exports were flat; the trade deficit was significantly more negative in the second quarter of 2014 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 flat in 2014 before increasing 6% in both 2015 and 2016.
  • Production was unchanged in the three months ending July 2014 compared with the same period one year ago. Primary aluminum production fell 15% from year-ago levels. Fortunately, production of aluminum sheet, plate, and foil and extruded products, which account for 75% of the industry, increased 2%.
  • Production in aluminum-using industries was positive: truck trailer production rose 15%, light vehicle production rose 16%, and aerospace production grew 3% from May 2014 to July 2014 compared with year-ago levels.
  • The Metals Service Center Institute reported that aluminum product shipments from U.S. metals services centers increased 9% in July 2014 versus the same month one year ago.
  • Alumina and aluminum production and processing imports fell 7% while exports fell 4%; the trade deficit was less negative in the second quarter of 2014 compared with one year ago.

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 5% in both 2014 and 2015, followed by 4% in 2016.
  • Production was up 6% in the three months ending July 2014 relative to the same period one year ago.
  • Most types of fabricated metal products saw production increases relative to one year ago. Forging and stamping was up 11%, architectural and structural metals rose 5%, and machine shop turned products and fasteners grew 7%, but coating, engraving, and heat treating rose only 2% in the three months ending July 2014 relative to the same period one year ago.
  • Fabricated metal products imports increased 6% and exports increased 6%; because imports are much larger than exports, the trade deficit was more negative in the second quarter of 2014 compared with one year ago.

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 2014, 4% in 2015, and 2% in 2016.
  • Overall production was down 1% in the three months ending July 2014 compared with the same period one year ago and the quarter-to-quarter momentum was negative 1%.
  • Petrochemical and other organic chemicals production fell 3% in the three months ending July 2014 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 4% in the three months ending July 2014 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 2% in the first 33 weeks of 2014 versus year-ago levels.
  • Basic chemicals imports were flat while exports declined 8%; the trade account was slightly more positive in the second quarter of 2014 relative to the same time last year.

Figures 10a & 10b

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

Paper production (Figures 10a and 10b)

  • Paper production is predicted to decline 2% in 2014, gain 3% in 2015, and rise 2% in 2016.
  • Production fell 3% in the three months ending July 2014 compared with the same period one year ago. A more short-term (quarter-to-quarter) analysis reveals 1% production momentum.
  • Production is declining in paper mills, paperboard containers, and paper bag and coated paper as well as converted paper products.
  • In a related sector, industrial production of food products was up 2% in the three months ending July 2014 compared with year-ago levels.
  • A report from the American Trucking Association indicated that truck tonnage increased 4% in July 2014 from one year ago.
  • Paper imports increased 6% while exports were up only 1%; the trade surplus in paper was less positive in the second quarter of 2014 compared with one year ago.

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 11% in 2014, 2% in 2015, and 7% in 2016.
  • Production rose 13% during May 2014 to July 2014 versus the same period one year ago. The quarter-to-quarter momentum was very positive.
  • Private nonresidential construction activity expanded 9% but public works construction fell 2% in the three months ending June 2014 compared with the same period one year ago.
  • Logging production increased 2% from May 2014 to July 2014 versus one year ago.
  • Nonferrous mining production and quarrying rose 8% in the three months ending July 2014 compared with the same period one year ago.
  • Construction equipment production is export-oriented. Imports fell 4% but exports declined 24%; the trade account went from a surplus to a deficit in the second quarter of 2014.
  • Caterpillar reports that their worldwide machine deliveries to users for retail sales were down 9% in July 2014 versus one year ago. Construction industries’ sales were flat but resources industries’ equipment fell 33%.

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 increase 7% in 2014, 6% in 2015, and 7% in 2016.
  • Production increased 9% in the three months ending July 2014 compared with one year ago and the quarter-to-quarter momentum was very strong.
  • The Energy Information Administration projects that coal production will rise 2% in 2014 and be flat in 2015.
  • Gold and silver mining in the United States fell 3% in the three months ending July 2014 compared with 2013.
  • Oil and gas well drilling production was up 6% in the three months ending July 2014 compared with 2013. Recent momentum in the drilling market was strong.
  • Mining and oil and gas field machinery production is export-oriented. Imports fell 9% while exports declined 2%; the trade surplus was slightly more positive in the second quarter of 2014 compared with one year ago.

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 9% in 2014, 9% in 2015, and 5% in 2016.
  • Production increased 8% in the three months ending July 2014 compared with the same period one year earlier but the momentum indicator was negative.
  • In related sectors, wood products production rose 5%, paper production fell 3%, textile mill production fell 1%, food production increased 2%, and plastic products production expanded 8% from May 2014 to July 2014 compared with the previous year.
  • The Semiconductor Equipment Association reported that equipment bookings in the three months ending July 2014 were 17% higher than in the same period one year ago.
  • Construction of new manufacturing plants increased 7% (in inflation-adjusted dollars) in the three months ending July 2014 from one year ago.
  • Industrial machinery imports were up 17% while exports fell 2%; the trade surplus was less positive in the second quarter of 2014 compared with one year ago.

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 should be 5% in 2014, 7% in 2015, and 6% in 2016.
  • Production rose 8% in the period of May 2014 to July 2014 on a year-over-year basis but the quarter-to-quarter momentum declined.
  • In related sectors, construction spending for home improvement fell 1% and inflation-adjusted private nonresidential construction rose 9% in the three months ending June 2014 versus one year ago.
  • Construction related to refrigeration was not good. Inflation-adjusted food manufacturing construction declined 10% and inflation-adjusted food store construction fell 3% in the second quarter of 2014 on a year-over-year basis.
  • HVAC imports increased 14% while exports declined 5%; the trade deficit was more negative in the second quarter of 2014 compared with one year ago.

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 7% in 2014, 8% in 2015, and 5% in 2016.
  • Production increased 9% in the three months ending July 2014 over year-ago levels and the quarter-to-quarter momentum was very positive.
  • The U.S. Census Bureau reported that metalworking machinery orders (in dollars) grew 2% in the second quarter of 2014 on a year-over-year basis.
  • Metalworking machinery imports increased 28% and exports were down 3%; the trade deficit was substantially more negative in the second quarter of 2014 compared with 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 4% in 2014, 7% in 2015, and 7% in 2016.
  • Production grew 11% in the three months ending July 2014 compared with the same period one year ago and the quarter-to-quarter momentum was positive.
  • Heavy-duty truck production was up 17% and the production of ships and boats was up 12% in the three months ending July 2014 over year-ago levels. The recent growth was in shipbuilding and repairing—boatbuilding posted little, if any, growth. Ship and boat production is predicted to grow 9% in 2014 and 3% in 2015, then have no growth in 2016.
  • Gas turbines are used for electric peaking generation. Electric power construction spending was unchanged in the three months ending July 2014 versus the same period one year ago.
  • Turbines compress gas in pipelines and power oil and gas well drilling. Pipeline and storage construction increased 94% in the three months ending July 2014 versus the same period one year ago, and oil and gas drilling in the United States increased 6% in the three months ending July 2014.
  • The American Wind Energy Association reported that during the second quarter of 2014, 619 megawatts of wind turbines was installed—a huge improvement from the zero megawatts installed one year ago. 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 were up 15% while exports rose 10%; the trade account was less positive in the second quarter of 2014.

Figures 17a & 17b

F=Forecast
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 July 2014, inflation-adjusted material handling orders were up 4% compared with one year ago.
  • The construction of buildings where elevators and escalators could be used is growing again. Construction of private and public buildings, adjusted for inflation, was up 3% in the three months ending July 2014 versus the same period one year ago.
  • Material handling equipment imports increased 8% while exports rose 12%; the small trade deficit turned less negative in the second quarter of 2014 from one year ago.

Figures 18a & 18b

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

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

  • MAPI does not forecast electronic computer equipment shipments. Shipments were down about 28% in 2013; in the first half of 2014, they are off 17% versus the same period one year ago.
  • Computer shipments fell 9% in the second quarter of 2014 compared with one year ago. Electronic computer prices declined 3%.
  • Electronic computer imports declined 1% while exports increased 5%; the large trade deficit was less negative in the second quarter of 2014 compared with one year ago.

Figures 19a & 19b

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

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.
  • We predict that communications equipment production will be flat in 2014 before increasing 8% in 2015 and 9% in 2016.
  • Production was unchanged in the period of May to July 2014 compared with one year ago.
  • Construction spending for communications infrastructure (in current dollars) increased 4% in the second quarter of 2014 versus one year ago.
  • Defense communications are about one-tenth of the communications equipment market; new orders (in current dollars) in this area rose 1% in the second quarter of 2014 from one year ago. Civilian communications equipment orders declined 21%.
  • Indicators show that the production of alarms, signaling equipment, and safety detectors declined sharply in the second quarter of 2014 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 and exports each increased 3%. Since imports are six to seven times larger than exports, the very large trade deficit was more negative in the second quarter of 2014 compared with one year ago.

Figures 20a & 20b

F=Forecast
Source(s): Semiconductor Industry Association and MAPI Foundation

Semiconductors (Figures 20a and 20b)

  • The dollar value of global billings reported by the Semiconductor Industry Association (SIA) increased 5% in 2013 and is up 11% in the first half of 2014 versus the same period one year ago.
  • World semiconductor revenues are forecast by World Semiconductor Trade Statistics, an association of semiconductor companies, to grow 7% in 2014, 3% in 2015, and 4% in 2016.
  • Shipments rose 11% in the second quarter of 2014 compared with one year ago, while semiconductor prices fell 4%.
  • The wireless communication segment for media tablets, smartphones, and automotive electronics is expected to have strong growth. All product categories will benefit from the global economic recovery. Wireless and automotive are expected to grow faster than the total market, while consumer and computer products are expected to remain nearly flat, according to WSTS.
  • The United States is both a large importer and exporter of semiconductors. Imports rose 7% while exports grew 3%; the large trade deficit was more negative in the second quarter of 2014 compared with one year ago.

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 2% in 2014, 4% in 2015, and 4% in 2016.
  • Instrument production was up 2% in the three months ending July 2014 compared with one year ago.
  • Search and navigation shipments (in current dollars) rose 3% in the second quarter of 2014 compared with one year ago; defense search and navigation shipments gained 1% and nondefense shipments rose 7%.
  • Electromedical manufacturers' output declined in the second quarter of 2014. 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 second quarter of 2014, industrial production activity had strong growth, the factory utilization rate was relatively high, and manufacturing investment picked up. Further, inflation-adjusted industrial construction rose 7% in the second quarter of 2014 versus last year.
  • Instruments for measuring and testing electricity and electrical signals seem to be rapidly 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 7% while exports fell 7%; the trade deficit was significantly more negative in the second quarter of 2014 compared with one year ago.

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 0% in 2014, 8% in 2015, and 13% in 2016.
  • Production fell 1% in the three months ending July 2014 compared with one year ago and the quarter-to-quarter momentum was negative.
  • In related sectors, inflation-adjusted residential construction spending increased 5% in the three months ending June 2014 from year-ago levels while nonresidential construction of buildings was up 3%.
  • Electric lighting equipment imports increased 13% while exports fell 2%; the trade deficit was more negative in the second quarter of 2014 compared with 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 2014, 6% in 2015, and 5% in 2016.
  • Production was up 6% in the three months ending July 2014 compared with one year ago.
  • The factory operating rate rose from 76.7% in the three months ending April 2014 to 77.3% in the three months ending in July. Relay and industrial controls appear to be growing at a moderate pace.
  • 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 in the second quarter was declining.
  • Transformers and power distribution equipment tend to follow electric utility construction, the creation of new communities, and a replacement cycle. Housing starts will be up 10% this year but the mix has shifted toward multi-family from single family. Electric power construction was relatively flat. Nevertheless, the severe weather led to significant transformer replacement activity. Production of transformers grew at a moderate pace in the three months ending July 2014 compared with one year ago.
  • Switchgear and switchboard apparatus production is growing at a very strong rate.
  • Electrical equipment imports increased 6% while exports were up 10%; because imports are twice as large as exports, the trade deficit was relatively unchanged in the second quarter of 2014 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 7% in both 2014 and 2015 and grow 5% in 2016.
  • Production increased 7% in the three months ending July 2014 compared with year-ago levels.
  • Surgical and medical instruments production is growing at a modest pace. Surgical appliances and supplies production is growing at a strong rate.
  • 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 posted moderate growth in the three months ending July 2014.
  • Medical equipment and supplies imports increased 4% while exports increased 5%; the trade deficit was relatively unchanged in the second quarter of 2014 compared with one year ago.

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 2014, 10% in 2015, and 9% in 2016.
  • In the three months ending July 2014, production was up 3% compared with one year ago.
  • Boeing reported 264 net orders for new commercial airplanes in the second quarter of 2014 and delivered 181 (up 7% from a year ago). Boeing delivered 648 commercial airplanes in 2013 and they expect 720 deliveries in 2014, an 11% increase.
  • U.S. airline traffic—measured in revenue passenger miles—rose 2.4% in the first five months of 2014 versus one year ago.
  • The International Air Transport Association (IATA) says that world passenger traffic rose 6% in 2013 and world freight traffic grew 2%. They forecast 6% growth in passenger traffic and a 3% increase in freight tonnage in 2014.
  • 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 2% in the three months ending June 2014 versus one year ago. Civilian aircraft and parts shipments rose 5% in this time frame.
  • With exports twice as large as imports, aerospace is the largest net exporter in U.S. manufacturing. Imports increased 23% while exports grew 6% in the second quarter of 2014, and the trade surplus fell relative to one year ago.

Figures 26a & 26b

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

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

  • MAPI does not forecast drilling production. Oil and gas well drilling declined 6% last year. Year to date through July 2014, drilling activity is up 4%.
  • Drilling activity was up 6% in the three months ending July 2014 relative to one year ago and has strong positive momentum.
  • Brent oil was down to $100 per barrel in late August. Henry Hub natural gas was $3.80 per million cubic feet in late August but spiked up to $7.75 in early March as a late cold wave created a temporary shortage of natural gas.
  • Baker Hughes reported that the North American rig count was up 2% versus year-ago levels in the 13 weeks ending August 22, 2014.
  • 83% of operating U.S. rigs looked for oil in late August 2014. The U.S. rig count for oil drilling was up 3% in the 13 weeks ending August 22, 2014 versus the same period one year ago. The U.S. rig count for natural gas drilling was down 1% 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 6% in 2014, 2% in 2015, and 12% in 2016.
  • Nonresidential construction was up 9% in the three months ending June 2014 versus year-ago levels.
  • There was very strong growth in lodging (hotels), office buildings, commercial, amusement and recreation, and oil and gas infrastructure in the second quarter of 2014. Manufacturing and religious building activity expanded at a rapid rate. Small declines in activity occurred in transportation, communications, private education, healthcare, and electric utility construction in the second quarter of 2014 versus one year ago.
  • Construction spending for factories, adjusted for inflation, rose 7% in the second quarter of 2014 over year-ago levels. The strongest growth was in chemicals, plastics, rubber, and nonmetallic mineral industries that disproportionally benefit from relatively low natural gas prices. Large declines occurred in fabricated metal, computers and electronics, and transportation equipment. We forecast that industrial construction will grow 2% in 2014, 7% in 2015, and 12% in 2016.
  • The architectural and engineering firm billing index—a leading indicator—has moved up sharply in recent months. The billing index’s level of 55.8 in July 2014 was well above 50, the breakeven level, and was the best reading since mid-2007.
  • Private electric power construction is falling at a slow pace because of overcapacity.

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 2014, 3% in 2015, and 1% in 2016.
  • Public works construction declined 2% in the second quarter of 2014 compared with the same period one year ago but the quarter-to-quarter momentum was very positive.
  • The largest declines in public construction were in healthcare, public safety, and water supply.
  • Moderate declines were evident in office buildings, public education, power, and street and highway construction.
  • Large gains in public construction occurred in amusement and recreation and conservation and development.
  • State and local government receipts from taxes and federal transfers will be up 3% in 2014, 5% in 2015, and 6% in 2016. 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 this year.

 

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