US manufacturers see muted recovery on high unemployment

WASHINGTON (ICIS news)--The US economy is in a moderate recovery and likely will grow by 2.8% this year, a major manufacturing group said on Friday, but the forecast cautioned that continued high unemployment could jeopardise that outlook.

The Manufacturers Alliance said in its quarterly economic forecast that “A number of positive trends are emerging as the US digs itself out of the ‘Great Recession’, but there remain cautionary signals that growth will be muted and the rebound restrained”.

The alliance predicted that US gross domestic production (GDP) likely will grow by 2.8% this year and reach a 3% growth rate in 2011. In normal economic times, the US economy would be expected to have so-called trend growth of 3% to 3.5%.

The manufacturers’ forecast expects that US consumers - the driving force of the nation’s economy - will boost spending moderately this year even though households are “still burdened by feeble income and job growth”.

The alliance also expects that investment in transportation equipment, information technology and residential housing this year “will increasingly provide the demand surge needed to sustain production growth” and that businesses will reduce de-stocking and eventually rebuild inventories.

Daniel Meckstroth, chief economist for the alliance, said that those factors and others point to “moderate economic performance in the first quarter of 2010”.

For manufacturing, he noted that production hit its trough in June 2009 and has increased more than 5% through January this year.

“A moderate recovery is underway, but it is the pace of future near-term growth that is questionable,” Meckstroth said.

He said US consumers will not be able to return to the high-spending ways that were underwritten in 2004-2007 by inflated home values, so just how much households will be able and willing to spend over the next several quarters is hard to say.

Unless the employment picture improves, he indicated, the recovery will continue to be muted and could be threatened.

“Government tax cuts have replaced lost income for the moment,” he said, “but eventually spending has to be grounded on wage increases and employment growth.”

“A jobless recovery is not an option in this cycle,” Meckstroth added.

Prospects for employment growth are not strong, he said.

“The employment outlook, unfortunately, will continue to pose a challenge,” Meckstroth said, adding that the alliance expects “unemployment to average 10% in 2010 and 9.4% in 2011”.

The alliance forecast came a day after US Federal Reserve Board chairman Ben Bernanke also cautioned that the recovery remains threatened by continued high unemployment and tight credit.