US manufacturers see recession possible early ‘08

15 November 2007 18:39  [Source: ICIS news]

WASHINGTON (ICIS news)--The US economy may slip into a recession in 2008 as housing and credit woes, rising oil prices, slowing employment and consumer restraint put the brakes on commerce, a leading manufacturing group said on Thursday.

 

In one of the first major forecasts to use “the R word,” the respected Manufacturers Alliance said in its quarterly economic outlook that inflation-adjusted US gross domestic product (GDP) will slow to 2.1% this year and slip to 1.3% in 2008.

 

Daniel Meckstroth, chief economist at the alliance, said the US is at “significant risk” for a mild recession as early as the first half next year. He noted that the US economy has fallen into recession after taking sector turn-down hits less numerous and less severe than those now facing the country.

 

“By itself, the housing collapse would probably not cause a recession, but when combined with a credit crunch, record oil prices, falling corporate profits, low consumer confidence and decelerating employment growth, the risk of recession has climbed to at least 50%,” Meckstroth said.

 

In the manufacturing sector - a key downstream consuming industry for chemicals - the alliance sees growth showing a significant decline from 4.7% in 2006 to an estimated 1.9% this year and no or fractional growth in the new year.

 

Meckstroth said his forecast calls for industrial equipment expenditures to show an increase of 2.5% this year but a decline of nearly 3.5% in 2008.

 

However, he said he expects inflation-adjusted spending for computers and electronic products - also a chemicals-rich production sector - to climb a robust 11.5% this year and remain strong with 10% growth in 2008.

 

“There are other pockets of optimism,” Meckstroth said. “Export growth should outpace that of imports by a wide margin by the end of 2008. Inflation-adjusted exports should rise 7.7% in 2007 and 8.7% in 2008 while imports are expected to increase 2.1% in 2007 and 1.5% the following year,” he said.

 

“If the US economy is able to avoid a recession next year, it will be due primarily to the declining value of the dollar and strong global growth, which shows up as substantial growth contribution from net exports,” he said.

 

Looking out on a five-year forecast, the alliance said it expects long-term oil prices to remain relatively high “but they will not consistently exceed $100/bbl for West Texas Intermediate,” the benchmark US crude.

 

Meckstroth said he expects the US housing sector and automobile manufacturing - two major downstream markets for chemicals and related products - will rebound as credit conditions and economic growth recover, but not until 2009 or 2010.

By: Joe Kamalick
+1 713 525 2653

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