Manufacturing Group Lowers Forecast

A quarterly survey of factory production lowered its forecast through 2012 but expects manufacturing to continue to outpace sluggish growth in the overall economy.

The Manufacturers Alliance/MAPI reduced its forecast growth in factory production to 4 percent this year and 3 percent in 2012. MAPI’s most recent forecast in May had been 6 percent this year and 4 percent next year.

Even at the lowered forecast, manufacturing will outperform GDP growth, which MAPI estimates will be 1.6 percent in 2011 and 2.1 percent in 2012. Quarter-to-quarter growth in industrial production was relatively flat in the second quarter after rising at a 7 percent annual rate in the first quarter.

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“A number of shocks adversely affected the economy and the manufacturing sector in the first half of 2011,” said Daniel J. Meckstroth, MAPI chief economist and author of the analysis. “Abnormal events included severe winter weather and spring flooding, the Japanese tsunami’s effect on the supply chain, high commodity prices (particularly food and oil) and a surge in home foreclosures.”

On the positive side, he cited increased auto production amid low inventories, and declines in food and oil prices. Plus, there was growth in the production of energy- and medical-related goods, and equipment and industrial-oriented machinery manufacturing. “Business equipment production should be a driver of manufacturing growth in the second half of this year,” Meckstroth said.

MAPI’s report provided economic forecasts for 24 of the 27 industries covered in the report. MAPI anticipates that 18 of the 24 industries will show gains in 2011, led by engine, turbine, and power transmission equipment with 23 percent growth. One industry, pharmaceuticals and medicine, will remain flat, the report said.

Improvement should continue in 2012 with growth likely in 23 of 24 industries, led by housing starts at 17 percent, albeit from depressed levels. Public works construction is the only industry expected to decline, by 5 percent, in 2012.

-- Contact Joseph Bonney at jbonney@joc.com. Follow him on Twitter @josephbonney.