Manufacturers cut US growth rate forecasts for 2011, 2012

25 August 2011 17:41  [Source: ICIS news]

WASHINGTON (ICIS)--A major manufacturers group on Thursday lowered its forecast for US economic growth this year and next, saying that a host of business concerns and a high level of uncertainty cloud the nation’s economic future.

In its quarterly economic forecast, the Manufacturers Alliance said it expects US gross domestic product (GDP) growth for this year will be only 1.6%, down from the 2.7% GDP expansion for 2011 that the group had predicted just three months ago.

For 2012, the alliance forecasts GDP growth of 2.1%, a downgrade from its May outlook predicting a 2.7% expansion.

Daniel Meckstroth, chief economist for the alliance, cited the sharply lower economic performance in the US for the first half of this year along with expectations for slower job growth, lack of business and consumer confidence, the continuing housing slump and government austerity.

In late July the Department of Commerce (DOC) drastically cut its estimate of US GDP for the first quarter, saying that the economy barely expanded at all in the first three months at 0.4%. 

The department’s initial estimate had been 1.9% GDP growth in the first quarter.

In addition, the department said that second quarter GDP growth was only 1.3%, well below the 1.8% pace that many economists had been expecting.

The US economy needs GDP expansion of at least 2% to accommodate new workers entering the job market, and growth of 2.5% or better to make any headway in reducing the nation’s 9.1% unemployment rate.

Normal annual GDP growth for the US economy would be in the range of 3%-3.5%.

With its outlook for US economic growth of only 1.6% this year and 2.1% for 2012, the alliance does not anticipate any significant reduction in US unemployment. The group said it expects the jobless rate to hold at 9.1% for full year 2011 and ease only marginally to 9.0% for all of 2012.

“Overall job growth will be disappointing,” Meckstroth said.

Other concerns also impact US economic prospects going forward, he said.

“We have already seen a stock market correction, and there could be further reverberations of the US rating downgrade by Standard & Poor’s,” Meckstroth said.

“In addition, the political gridlock in solving the long term federal budget deficit lowers confidence in the US, and state and local governments are in an austerity mode,” he added.

“Unfortunately, there are relatively few economic drivers that are likely to accelerate over the rest of the year,” Meckstroth said.

Manufacturing is among the few bright spots in the US economy, he said. The alliance expects 4.1% growth in manufacturing this year and a 3.2% sector expansion in 2012.

However, here too the alliance has lowered its expectations from just three months earlier, when it forecast manufacturing growth of 6.2% this year and 4.2% in 2012.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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