Manufacturing production growth is forecasted to mirror GDP in the next two years.

After remaining ahead of overall gross domestic product (GDP) growth in 2006, manufacturing production growth is likely to mirror GDP in the next two years, according to a report from the Manufacturers Alliance/MAPI. The alliance’s economic forecast predicts that inflation-adjusted GDP growth will slow to 2.5 percent in 2007 before rebounding to 3.3 percent in 2008, matching the current outlook for 2006.

By supplying assumptions for the economy and running simulations through the Global Insight Macroeconomic Model, the alliance generates its forecasts. “The mid-cycle correction, or a ‘soft landing,’ is playing out about the way we expected,” said Daniel J. Mecksroth, chief economist of the alliance. “Big-ticket items, particularly housing and motor vehicles, and business inventory swings play a large part in current deceleration of economic activity.”

Manufacturing production growth will show a fairly significant retrenchment from 4.8 percent growth in 2006 to 2.6 percent in 2007, the alliance predicts. As with the overall GDP, however, the MAPI forecast predicts industrial production will increase 3.4 percent in 2008. Inflation-adjusted spending for computers and electronic products is forecast to rise 12.5 percent in 2007 and 10.6 percent in 2008. Production in non-high-tech industries will grow a more modest 1.7 percent next year and 2.5 percent in 2008, MAPI says.

“High-tech industrial production – as defined by the Federal Reserve – is only 5 percent of the manufacturing value added, but large price declines and quality upgrades in the industry lead to very strong growth in physical volume,” Mecksroth said. “Non-high-tech production growth is a better reflection of the pace of manufacturing activity.”

The alliance estimates spending on non-residential structures will rise to a “robust” 9.1 percent in 2007, but remain flat in 2008. The forecast calls for industrial equipment expenditures to increase 3.8 percent before declining by 0.1 percent in the same years. The outlook for spending for transportation equipment is more optimistic, with a 5 percent gain in 2007 and 7.8 percent growth in 2008. The forecast for the unemployment rate is 4.8 percent in 2007 and 4.7 percent in 2008.

SIDEBAR:
OHIO Earns top ranking for U.S. manufacturing competitiveness. In November, Ohio achieved the No. 1 ranking in the country for manufacturing, according to the findings of eMvoy, a Chicago-based industry research group.

“Manufacturing has long been a cornerstone of Ohio’s economy,” said Lieutenant Governor Bruce Johnson, who serves as the state’s development director. “This award is evidence that the changes we made to our tax code and the investments we are making in high-tech processes and devices are positively changing the outlook for our state.” More than 100,000 manufacturers were rated by assessing company stability, market penetration, technology and Web presence to determine eMvoy’s findings. Only 13 other states, including six in the Great Lakes region, were found to be significantly above-average for industrial competitiveness, eMvoy said.

Craig Landy, eMvoy CEO, presented the award at Screen Machine Industries Inc., located in Pataskala, Ohio, which was one of the highly rated Ohio companies included in the results.

“It’s especially fitting that we are presenting the award to the lieutenant governor on this factory floor,” Landy said. “Johnson has demonstrated his commitment to manufacturing through a range of initiatives that promote competitiveness and forward-think fabrication technologies. Screen Machine Industries is a remarkable example of a winning formula for Ohio manufacturing.”