U.S. Industrial Outlook: Strong Dollar Offsets Low Energy Prices

Wednesday, March 18, 2015

U.S. Industrial Outlook: Strong Dollar Offsets Low Energy Prices

Need to Know . . .

  • Manufacturing production is forecast to grow 3.7% in 2015 and 3.6% in 2016
  • Low energy prices allow consumers to buy more non-energy goods and services and lower manufacturing costs. The offset is that low prices will depress the energy infrastructure buildup
  • WTI oil prices in the $50s will discourage most shale drilling and will cause a major decline in oilfield investment

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Summary of Findings and Forecasts
Every three months, the MAPI Foundation 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 January 2015 and provides our forecasts, completed in early February 2015.

Manufacturing industrial production increased at a 3.8% annual rate in the fourth quarter of 2014—much faster than the 2.2% pace in the overall economy. Production activity was exceptionally strong in November, thanks to a 6% surge in motor vehicles production that month. Although motor vehicle production declined in December and January, production was still on net 4% higher than in October.

Manufacturing production grew 1.2% in November, was flat in December, and expanded 0.2% in January 2015. Besides motor vehicles and parts, the strongest industrial growth over those three months was in beverages, soap and cleaning products, rubber and plastics, primary metals, petroleum refining, and electronics.

The manufacturing outlook for 2015 and 2016 calls for a minor acceleration in the growth rate each year. The good news is that low energy prices lower manufacturing costs and allow consumers to buy more non-energy goods and services. The offset is that low prices will depress the energy infrastructure buildup and the strong dollar will raise the trade deficit in manufacturing. The shifting forces offset and leave overall manufacturing production growing close to the same pace as last year—though thankfully, still faster than the pace of growth in the overall economy.

Consumer spending growth is primarily job-driven, i.e., the U.S. has more workers with incomes. Big-ticket purchases of motor vehicles and housing are traditional bellwethers for consumer durables–driven manufacturing. Low gas prices will spur additional purchases of motor vehicles and keep the strong pace of growth going another year before a deceleration in 2016. Housing starts, however, are at an earlier stage of recovery and should expand 16% in 2015 and 14% in 2016. The growth in new households will speed up purchases of appliances and other household goods.

Business investment responds to the ability to borrow and the need for capacity. Firms have cash and are profitable, utilization rates are high, and credit is available. We expect a ramp-up of the supply chains for construction materials and accelerating delivery of new civilian aerospace products. In addition, manufacturing plants are receiving significant investment in machinery and structures. The continued moderate growth in manufacturing production will underpin a rebound in material industries production.

Manufacturing production is forecast to grow 3.7% in 2015 and 3.6% in 2016. High-tech production (computer and electronic products) should grow 6.1% in 2015 and 9.1% 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:

  • Our view on the housing recovery has not changed. The 2015 growth rate is balanced between single and multi-family. Single-family starts should accelerate and lead housing activity in 2016. 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 of a gasoline price windfall. We expect production growth to slow in 2016.
  • Growth drivers are the construction supply chain, transportation equipment infrastructure (particularly this year), medical care expansion, and less slack/excess capacity that will thus boost factory investment. The pace of business equipment production should stay relatively strong.
  • Oil prices fell sooner and more than we expected. WTI oil prices in the $50s will discourage most shale drilling and will cause a major decline in oilfield investment. Natural gas prices were dragged down with oil and were extremely low during a severe winter. Mining and drilling equipment production will decline 15% in 2015 and 19% in 2016.
  • We expect the high-tech industry to accelerate this year and next. Faster growth in automotive electronics, IT equipment spending, and communications electronics are the growth drivers.
  • Medical equipment production will post solid growth thanks to aging trends and the fact that the Affordable Care Act is bringing more people under coverage. We expect a rebound in long-dormant pharmaceutical production starting this year. The growth rate improves as new products come on the market and fewer products lose patent protection.
  • Civilian aerospace production is beginning to ramp up. The civilian aircraft backlog is large and aircraft production will show strong growth over the next several years. Defense cuts will restrain what could have been a robust aerospace growth rate.
  • Private nonresidential construction benefits from strong growth in commercial and industrial structures. The pace of growth is held down by flat institutional and declining utility construction.
  • With tax revenue growth more normal, there is less austerity pressure, so public works construction will grow at a modest pace.

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 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, January 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 2 a&b

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

Housing starts (Figures 2a and 2b)

  • Housing starts should increase 16% to 1,166,000 units in 2015 and 14% to 1,334,000 units in 2016.
  • New census data show that younger people are delaying marriage, staying in school longer, and doubling up in order to reduce housing expenses. Exploding educational loan debt is a major barrier to household formation.
  • The Case-Shiller housing price index was up 8% in the fourth quarter compared with the previous quarter and was 5% above the previous year.
  • The severe winter is influencing housing. In the three months ending January 2015, new home sales were 5% above year-ago levels but up sharply from the previous three months.
  • The inventory of new homes was 5.4 months of supply in January 2015, up from 5.0 months in January 2014 but down from 6.2 months in July.
  • 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 February, mortgage rates eased to 3.8% from 4.5% at the beginning of last year.
  • In the fourth quarter of 2014, the combined percentage of all mortgage loans in foreclosure or delinquent was 7.9%; the rate is down to 2007 levels.

Figures 3 a&b

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 8% in 2015 and 4% in 2016. Auto and light truck sales should be 16.8 million units in 2015 and 17.1 million units in 2016.
  • Overall production was up 10% in the three months ending January 2015 compared with the same period one year ago. Production was up 4% for automobiles and 13% for light trucks and utility vehicles. Auto parts production increased 8% over year-ago levels.
  • Heavy-duty truck production increased 24% in the three months ending January 2015 over the same period one year ago; truck trailer production rose 28%.
  • Heavy-duty truck production should see growth of 11% in 2015 and 1% in 2016.
  • Production of campers and travel trailers rose 23% in the three months ending January 2015 over the same period one year earlier; big-ticket motor home production increased 8%.
  • Motor vehicles and parts imports were up 6% while exports were up 5%. Imports are more than twice as large as exports, so the sizable trade deficit was still more negative in the fourth quarter of 2014 compared with one year earlier.

Figures 4 a&b

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 6% in both 2015 and 2016.
  • Production grew 6% in the three months ending January 2015 compared with the same period one year ago; production of both small and large appliances increased 6% (the production value of major appliances is twice as large as that of small appliances). The momentum indicator, relating production from November 2014 to January 2015 to that of the previous three months, shows production growing at a 1% annual rate.
  • Existing home sales fell 5% in January 2015 from one year earlier. Severe weather and low housing inventory on the market depressed home sales recently.
  • At 6:1, household appliances has one of the highest import to export ratios in manufacturing. Household appliance imports increased 5% while exports were flat; the trade deficit was more negative in the fourth quarter of 2014 compared with one year ago.

Figures 5 a&b

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

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

  • Pharmaceutical and medicine production should increase 4% in both 2015 and 2016.
  • Production rose 3% in the three months ending January 2015 compared with the same period one year ago and the recent quarter-to-quarter change grew at a 3% annual rate.
  • Fewer patents are expiring than in the past few years so new product launches are making up for the losses.
  • Employment in pharmaceuticals and medicine was up a strong 2% in the fourth quarter of 2014 compared with the same period one year earlier. There was a 1% gain in pharmaceuticals and 6% growth in miscellaneous medicinal and biologicals employment.
  • Implementation of the Affordable Care Act has enough scale to become an entitlement. The individual mandate will increase access for tens of millions of people to drug treatments.
  • Pharmaceutical imports rose 12% while exports expanded 14%. Imports are nearly twice as large as exports, so the large trade deficit was still more negative in the fourth quarter of 2014 compared with one year earlier.

Figures 6 a&b

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 5% in both 2015 and 2016.
  • Output was up 5% in the three months ending January 2015 versus the same period one year ago. Compared with August to October, the production momentum fell at a 2% annual rate.
  • Capacity utilization in the U.S. steel industry was 70% in the week of February 28, 2015 (lower than the 76% in the same week one year ago). The steel industry has a much lower factory utilization rate than for overall manufacturing.
  • U.S. durable goods manufacturing industries’ momentum was up a strong 6% during November 2014 to January 2015 compared with August to October; these are predominantly steel-intensive industries.
  • Steel production was up 1% in Europe (28 countries), 1% in Russia, and 10% in Korea in the three months ending January 2015 compared with year-ago levels. China’s steel production rose only 4% and Taiwan’s steel production was up 6%. Steel production was flat in Brazil.
  • Steel product imports rose 39% while exports fell 1%; the trade deficit was significantly more negative in the fourth quarter of 2014 compared with one year ago.

Figures 7 a&b

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 increase 7% in 2015 and 4% in 2016.
  • Production was up 10% in the three months ending January 2015 compared with the same period one year ago. Primary aluminum production fell 8% from year-ago levels. Fortunately, production of aluminum sheet, plate, and foil and extruded products, which account for 89% of the industry, increased 13%.
  • Production in aluminum-using industries was positive: truck trailer production rose 28%, light vehicle production rose 13%, and aerospace production grew 5% from November to January 2015 compared with year-ago levels.
  • The Metals Service Center Institute reported that aluminum product shipments from U.S. metals services centers fell 3% in January 2015 versus the same month one year ago.
  • Alumina and aluminum production and processing imports rose 25% while exports rose 3%; the trade deficit was more negative in the fourth quarter of 2014 compared with one year earlier.

Figures 8 a&b

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 and 4% in 2016.
  • Production was up 4% in the three months ending January 2015 relative to the same period one year ago and the quarter-to-quarter momentum was positive.
  • 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%, machine shop turned products and fasteners grew 2%, and coating, engraving, and heat treating rose 3% in the three months ending January 2015 relative to the same period one year ago.
  • Fabricated metal products imports increased 6% and exports increased 8%; the trade deficit was slightly less negative in the fourth quarter of 2014 compared with one year earlier.

Figures 9 a&b

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

Basic chemicals production (Figures 9a and 9b)

  • Basic chemicals production should increase 3% in both 2015 and 2016.
  • Overall production was up 2% in the three months ending January 2015 compared with the same period one year ago and the quarter-to-quarter momentum was a positive 3%.
  • Petrochemical and other organic chemicals production fell 1% in the three months ending January 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 9% in the three months ending January 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 3% in the first eight weeks of 2015 versus year-ago levels.
  • Basic chemicals imports were down 7% while exports declined 3%; the trade account was more positive in the fourth quarter of 2014 relative to one year earlier.

Figures 10 a&b

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

Paper production (Figures 10a and 10b)

  • Paper production is predicted to increase 1% in 2015 and 2% in 2016.
  • Production was flat in the three months ending January 2015 compared with the same period one year ago. A more short-term (quarter-to-quarter) analysis reveals 4% production momentum.
  • In a related sector, industrial production of food products was up 3% in the three months ending January 2015 compared with year-ago levels.
  • A report from the American Trucking Association indicated that truck tonnage increased 7% in January 2015 from one year ago.
  • Paper imports increased 4% while exports were flat; the trade surplus in paper was less positive in the fourth quarter of 2014 compared with one year earlier.

Figures 11 a&b

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

Construction machinery production (Figures 11a and 11b)

  • Construction machinery production should increase 7% in 2015 and 1% in 2016.
  • Production rose 29% during November 2014 to January 2015 versus the same period one year earlier. The quarter-to-quarter momentum was very strong.
  • Both private nonresidential and public works construction activity expanded 3% in the three months ending January 2015 compared with the same period one year ago.
  • Logging production fell 3% from November 2014 to January 2015 versus one year ago.
  • Mining and quarrying production increased 3% in the three months ending January 2015 compared with the same period one year ago. The growth was concentrated in quarrying; coal mining increased slightly. Precious and nonferrous metals mining fell 7% and 4%, respectively.
  • Construction equipment production is export-oriented. Imports rose 22% but exports declined 10%; the small trade deficit became more negative in the fourth quarter of 2014.
  • Caterpillar reports that their worldwide machine deliveries to users for retail sales, adjusted for inflation, were down 14% in January 2015 versus one year earlier. Construction industries’ sales were down 10% and resources industries’ equipment fell 27%.

Figures 12 a&b

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 15% in 2015 and 19% in 2016.
  • Production increased 12% in the three months ending January 2015 compared with one year earlier and the quarter-to-quarter momentum was strong.
  • WTI oil prices were $95 in September and about $50 in early March. The current price is probably below breakeven for shale oil drilling, so the supply chain will experience declining activity.
  • The Energy Information Administration projects that coal production will fall 3% in 2015 and 1% in 2016.
  • Gold and silver mining in the United States fell 7% in the three months ending January 2015 compared with the same period one year earlier.
  • Oil and gas well drilling production was up 3% in the three months ending January 2015 compared with 2014. Recent momentum in the drilling market was very negative.
  • Mining and oil and gas field machinery production is export-oriented. Imports increased 11% while exports grew 7%; the trade surplus was slightly more positive in the fourth quarter of 2014 compared with one year earlier.

Figures 13 a&b

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 6% in 2015 and 4% in 2016.
  • Production increased 6% in the three months ending January 2015 compared with the same period one year earlier and the momentum indicator was very positive.
  • In related sectors, wood products production rose 3%, paper production was flat, textile mill production rose 1%, food production increased 3%, and plastic products production expanded 9% from November 2014 to January 2015 compared with the previous year.
  • The Semiconductor Equipment Association reported that equipment bookings in the three months ending January 2015 were 3% higher than in the same period one year earlier.
  • Construction of new manufacturing plants increased 20% (in inflation-adjusted dollars) in the three months ending January 2015 from one year ago.
  • Industrial machinery imports were down 8% while exports rose 3%; the trade surplus was more positive in the fourth quarter of 2014 compared with one year ago.

Figures 14 a&b

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 1% in 2015 and 5% in 2016.
  • Production rose 5% in the period of November 2014 to January 2015 on a year-over-year basis and the quarter-to-quarter momentum was even stronger.
  • In related sectors, construction spending for home improvement fell 30% and inflation-adjusted private nonresidential construction rose 3% in the three months ending January 2015 versus one year ago.
  • Construction related to refrigeration was very good. Inflation-adjusted food manufacturing construction rose 41% and inflation-adjusted food store construction was up 37% in the three months ending January 2015 versus one year ago.
  • HVAC imports increased 22% while exports were unchanged. The trade deficit was substantially more negative in the fourth quarter of 2014 compared with one year earlier.

Figures 15 a&b

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 4% in both 2015 and 2016.
  • Production rose 10% in the three months ending January 2015 over year-ago levels and the quarter-to-quarter momentum was a slower 2%.
  • The U.S. Census Bureau reported that metalworking machinery orders (in dollars) grew 2% in the three months ending January 2015 on a year-over-year basis.
  • Metalworking machinery imports increased 8% and exports were unchanged; the trade deficit was more negative in the fourth quarter of 2014 compared with one year earlier.

Figures 16 a&b

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 2% in 2016.
  • Production grew 22% in the three months ending January 2015 compared with the same period one year earlier and the quarter-to-quarter momentum was very positive.
  • Heavy-duty truck production was up 24% and the production of ships and boats was up 6% in the three months ending January 2015 over year-ago levels. The recent growth was in both shipbuilding and repairing and boatbuilding. Ship and boat production is predicted to grow 5% in 2015 and 1% in 2016.
  • Gas turbines are used for electric peaking generation. Electric power construction spending fell 33% in the three months ending January 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 42% in the three months ending January 2015 versus the same period one year ago and oil and gas drilling in the United States increased 3%.
  • The American Wind Energy Association reported that during the fourth quarter of 2014, 3,600 megawatts of wind turbines were installed—a huge improvement from the 1,016 megawatts installed one year earlier. 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 11% and exports were up 7%; the trade account was slightly less positive in the fourth quarter of 2014.

Figures 17 a&b

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 January 2015, inflation-adjusted material handling orders were down 2% 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 8% in the three months ending January 2015 versus the same period one year ago.
  • Warehousing and storage employment was up 5% in the three months ending February 2015 versus the same period one year earlier.
  • Material handling equipment imports increased 5% while exports fell 4%; the trade deficit turned more negative in the fourth quarter of 2014 from one year earlier.

Figures 18 a&b

F=Forecast
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 29% in the three months ending January 2015 compared with one year earlier. Electronic computer prices declined 4%.
  • Electronic computer imports rose 1% while exports were unchanged; the large trade deficit was more negative in the fourth quarter of 2014 compared with one year earlier.

Figures 19 a&b

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 4% in 2015 and 7% in 2016.
  • Production fell 4% in the period of November 2014 to January 2015 compared with one year ago.
  • Construction spending for communications infrastructure (in current dollars) declined 10% in the three months ending in January 2015 versus one year ago.
  • Defense communications are about one-tenth of the communications equipment market; new orders (in current dollars) in this area dropped 5% in November 2014 to January 2015 from one year ago. Civilian communications equipment orders declined 8%.
  • Employment indicators show that the production of alarms, signaling equipment, and safety detectors declined in the fourth quarter of 2014 from one year earlier.
  • The communications equipment industry is very dependent on imports from contract manufacturing plants in Asia. Domestic production accounts for only a small proportion of domestic consumption. Imports increased 22% while exports declined 2% in the fourth quarter versus one year ago. Since imports are six to seven times larger than exports, the very large trade deficit was substantially more negative in the fourth quarter of 2014 compared with one year ago.

Figures 20 a&b

F=Forecast
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 both 2015 and 2016.
  • Shipments rose 11% in the three months ending January 2015 compared with one year ago and prices fell 3%.
  • Automotive and communications electronics should have the strongest growth while consumer and computer products should remain nearly flat, according to WSTS.
  • The United States is both a large importer and exporter of semiconductors. Imports rose 9% and exports were up 4%; the sizable trade deficit was more negative in the fourth quarter of 2014 compared with one year earlier.

Figures 21 a&b

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 and 4% in 2016.
  • Instrument production was up 4% in the three months ending January 2015 compared with one year ago.
  • Search and navigation shipments (in current dollars) rose 4% in the three months ending January 2015 compared with one year ago; defense search and navigation shipments gained 4% and nondefense shipments rose 4%.
  • The electromedical industry’s output rose very rapidly in the fourth quarter of 2014. An aging population and expansion in health insurance coverage is 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 fourth quarter of 2014, industry employment fell 3% compared with one year earlier. The industrial instruments market environment is strong, however, manufacturing production is growing at a moderate pace, and there is robust growth in factory machinery investment and the construction of manufacturing plants.
  • Instruments for measuring and testing electricity and electrical signals lost jobs. In the fourth quarter of 2014, industry employment fell 1% 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 imports increased 8% while exports fell 6%; the trade deficit was significantly more negative in the fourth quarter of 2014 compared with one year earlier.

Figures 22 a&b

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 be flat in 2015 and grow 5% in 2016.
  • Production increased 2% in the three months ending January 2015 compared with one year ago and the quarter-to-quarter momentum was positive.
  • In related sectors, inflation-adjusted residential construction spending declined 5% in the three months ending January 2015 from year-ago levels while nonresidential construction of buildings was up 8%.
  • At 6:1, electric lighting equipment has one of the highest import to export ratios in manufacturing. Imports increased 6% while exports rose 4% in the fourth quarter compared with one year earlier. The trade deficit thus became more negative.

Figures 23 a&b

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 2% in 2015 and 4% in 2016.
  • Production was up 6% in the three months ending January 2015 compared with one year ago.
  • The factory operating rate is at a relatively high level, reaching 78.1% in January 2015 from 77.4% in October 2014. Relay and industrial controls appear to be growing at a strong pace. Employment in the industry was up 1% in the fourth quarter of 2014 relative to one year earlier.
  • 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 fourth quarter was growing at a moderate rate.
  • Transformers and power distribution equipment tend to follow electric utility construction, the creation of new communities, and a replacement cycle. Housing starts were up 4% in the three months ending January 2015. Electric power construction declined sharply. Employment in the transformer industry fell 1% in the fourth quarter of 2014 compared with one year earlier.
  • Switchgear and switchboard apparatus production is growing at a strong rate.
  • Electrical equipment imports increased 2% while exports were up 11%. Imports are twice as large as exports, but the strength of exports pushed the trade deficit less negative in the fourth quarter of 2014 compared with one year ago.

Figures 24 a&b

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 6% in 2015 and 4% in 2016.
  • Production increased 8% in the three months ending January 2015 compared with year-ago levels.
  • Surgical and medical instruments employment fell 1% in the fourth quarter. Surgical appliances and supplies employment increased a strong 4%.
  • 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 probably declined since employment in the industry dropped 4% in the fourth quarter.
  • Dental laboratories industry employment fell 4% in the three months ending December 2014.
  • Medical equipment and supplies imports increased 5% while exports increased 4%; the trade deficit grew slightly more negative in the fourth quarter of 2014 compared with one year earlier.

Figures 25 a&b

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 4% in 2015 and 7% in 2016.
  • In the three months ending January 2015, production was up 5% compared with one year ago.
  • Boeing reported 432 net orders for new commercial airplanes in the fourth quarter of 2014 and delivered 195 (up 13% 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 first 10 months of 2014 versus one year ago.
  • The International Air Transport Association (IATA) says that world passenger traffic rose 5% in January 2015 versus a year ago and world freight traffic grew 3%.
  • 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 8% in the three months ending January 2015 versus one year ago. Civilian aircraft and parts shipments rose 14% in this time frame.
  • With imports only one-half as large as exports, aerospace is the largest net exporter in U.S. manufacturing. Imports increased 5% while exports grew 11% in the fourth quarter of 2014, and the trade surplus was more positive relative to one year earlier.

Figures 26 a&b

F=Forecast
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 was up 3% in the three months ending January 2015 relative to one year ago but has sizable negative momentum.
  • Brent oil plummeted from $113 in June to $61 per barrel in early March 2015. Henry Hub natural gas declined from $4.50 in June 2014 to $2.79 per million cubic feet in early March 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 13% versus year-ago levels in the nine weeks ending February 27, 2015.
  • 78% of operating U.S. rigs looked for oil. The U.S. rig count for oil drilling was down 13% in the nine weeks ending February 27, 2015 versus the same period one year ago. The U.S. rig count for natural gas drilling was down 12% in the same period.

Figures 27 a&b

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 3% in 2015 and 7% in 2016.
  • Nonresidential construction was up 3% in the three months ending January 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 infrastructure in the three months ending January 2015. Small declines in activity occurred in private education, healthcare, and religious construction. Large declines were in communications and electric utility construction.
  • Construction spending for factories, adjusted for inflation, rose 20% from November 2014 to January 2015 from one year ago. The strongest growth was in food, chemicals, transportation equipment, and plastics and rubber. Nonmetallic minerals, fabricated metal products, and computers and electronics posted large declines. We forecast that industrial construction will grow 10% in 2015 and 2% in 2016.
  • The architectural and engineering firm billing index—a leading indicator—peaked in July 2014 at 55.1 and has been gradually declining. In January 2015, the index dropped slightly below 50, the breakeven level. Severe winter weather explains the weakness. Nevertheless, architectural and engineering employment is robust, up 4% in the three months ending February 2015 versus one year ago.
  • Private electric power construction is falling at a fast pace because of overcapacity.

Figures 28 a&b

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 3% in 2015 and 1% in 2016.
  • Public works construction was up 3% in the three months ending in January 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.
  • Moderate growth was evident in office buildings, water supply, transportation, and street and highway construction.
  • State and local government receipts from taxes and federal transfers will be up 4% in 2015 and 6% in 2016. A moderate pace of economic expansion will generate higher personal tax receipts and property taxes as well as a rebound in business income tax payments. Federal grants-in-aid for Medicaid will get a large boost from the Affordable Care Act.