MercoPress. South Atlantic News Agency

US manufacturers anticipate a mild recession next year

The United States manufacturing sector will face turbulent times next year due in large part to the continuing housing collapse. As a result, the economic landscape will remain highly volatile in 2008 before rebounding in 2009, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook, a report that analyzes 27 major industries.

Housing starts were down 24% in the third quarter of 2007. They are expected to plummet another 28% in 2008, foreshadowing the worst housing market in the post-World War II period, according to Daniel J. Meckstroth, Ph.D., Chief Economist for the Manufacturers Alliance/MAPI, and author of the analysis. The good news is that the trend is likely to reverse itself, and then some, in 2009, when housing starts are expected to see 34% growth to 1.3 million units. On an annual basis, MAPI forecasts a mild manufacturing recession next year. Manufacturing production is expected to increase 1.9% in 2007. The Alliance predicts no growth in 2008?including a slight decline in non-high tech industries?before rebounding to 2.6% growth in 2009. "Five economic shocks are contributing to halt industrial growth," Meckstroth said. "The shocks are: a significantly worse housing start outlook; the negative impacts of falling housing prices on consumer spending; the credit crunch; high gasoline and record high fuel oil prices, and if we have an exceptionally cold winter, natural gas prices could also spike; and, finally, the economy is generating less job growth," Meckstroth said. Prevailing weakness in the industrial sector was evident in the 2007 third quarter figures. Thirteen of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, down from 14 in the previous quarter. Twelve industries had production below the level of one year ago, and two remained flat. Four industries enjoyed strong, double-digit year-over-year growth in the third quarter, including communications equipment at 15%; electrical equipment at 12%; aerospace products and parts grew by 11%; and private non-residential construction enjoyed 10% growth. The largest drop came in equipment industries, where six of the seven sub-sectors declined year-over-year in the third quarter. Ventilation, heating, air conditioning, and commercial refrigeration experienced the most retrenchment, declining by 12%. Meckstroth concludes that four industries are in the accelerating growth (recovery) phase of the business cycle; 10 are in the decelerating growth (expansion) phase; nine industries appear to be in the accelerating decline (either early recession or mid-recession) phase; and four are in the decelerating decline (late recession or very mild recession) phase of the cycle. "The decline in the value of the U.S. dollar will act as a stabilizer to manufacturing," Meckstroth concluded. "U.S. exports will increase at a rapid pace while import growth decelerates. The trade situation will cushion the industrial decline next year and boost growth in 2009."