Manufacturers Alliance/MAPI Analysis: Industrial Recovery Remains Strong

The manufacturing recovery remains very strong and should maintain a moderately solid overall growth trend throughout 2005 and 2006, according to the Manufacturers Alliance/MAPI Quarterly Industrial Outlook (ER-578e), a report that analyzes 27 major industries.

In a sign of the broad-based strength in manufacturing, third-quarter 2004 figures show that 24 of the 27 industries tracked in the report had inflation-adjusted new orders or production above the level of one year ago, equal to the number of industries showing growth in the second quarter. In general, industries that were growing in the second quarter of this year accelerated in the pace of growth in the third quarter.

Top industry performers in the third quarter, recording double-digit growth, were construction machinery; semiconductors; electric lighting equipment; engines, turbines, and power transmission equipment; iron and steel products; material handling equipment; industrial machinery; navigation, measuring, electromedical, and control instruments; and electrical equipment.

Daniel J. Meckstroth, Ph.D., Manufacturers Alliance/MAPI Chief Economist and author of the analysis, writes that 18 industries are in the accelerating growth (recovery) phase of the business cycle, 8 industries are in the decelerating growth (expansion) phase, and only 1 industry group is in the decelerating decline (late recession or very mild recession) phase of the cycle.

"We believe that there are five growth themes over the next couple of years," Meckstroth said. "Solid growth is expected for industries supporting the growth themes of defense spending, information technology spending, machinery investment, medical spending, and freight movement."

The report also offers economic forecasts for 24 of the 27 industries and provides a forecast for 2005 in addition to offering an initial look at 2006.

Four industries are expected to enjoy double-digit growth in both 2005 and 2006: mining, oil field, and gas field machinery (19 percent in 2005 and 19 percent in 2006); communications equipment (14 percent/19 percent); computers (13 percent/17 percent); and metalworking machinery (11 percent/11 percent). Four industries-industrial machinery (8 percent/7 percent); pharmaceutical and medicine production (6 percent/6 percent); private nonresidential construction (6 percent/5 percent); and medical equipment (5 percent/6 percent)-are predicted to enjoy growth of 5 percent or better in each of the next two years.

Only one industry-housing starts-is forecast to have negative change in both 2005 and 2006, retrenching 6 percent each year, due to gradually higher mortgage rates. This, however, will come on the heels of a strong current year, where 2004 units are up 4 percent over 2003.

"A broad-based manufacturing expansion is under way," Meckstroth added. "We are optimistic that moderately strong production growth will occur across many industries in 2005 and 2006."

Source: Manufacturers Alliance/MAPI