US manufacturers raise outlook for nation's economy in ’12, ‘13

27 February 2012 18:56  [Source: ICIS news]

WASHINGTON (ICIS)--A leading US manufacturing group on Monday raised its outlook for the nation's economy for this year and next, saying that multiple positive indicators point to “sustained momentum for the US economy and manufacturing”.

In its quarterly economic forecast, the Manufacturers Alliance for Productivity and Innovation (MAPI) said that it expects US gross domestic product (GDP) this year will grow by 2.2% and show a 2.4% advance in 2013.

Those GDP growth rates mean, however, that for both this year and next the US economy would be expanding at a below-trend pace. Ordinarily, the US economy would be expected to generate annual GDP growth of 3-3.5%.

But MAPI’s new forecast for the nation’s economic growth this year does mark a modest improvement from the group’s earlier outlook. In November last year MAPI was predicting 2012 US GDP of 2.1%.

That slight upward shift in the outlook is important, according to Daniel Meckstroth, MAPI’s chief economist.

“The forecast is a bit more optimistic and the probability of a double-dip recession has diminished,” Meckstroth said.

Among the positive indicators that suggest ongoing momentum for the US recovery, Meckstroth noted that “There is pent-up demand for consumer durable goods, especially motor vehicles”.

Durable goods manufacturing and automobile production are both key downstream consumer industries for chemicals and plastics.

In addition, said Meckstroth, “business investment is improving, and not just for repair and replacement of equipment – there is also investment in expanding capacity”.

He said that “Global infrastructure building is an economic driver, in particular creating a demand in developing countries for US construction, aerospace and mining and drilling equipment”.

While the US recovery is forecast to slowly gain strength although still be below-trend for the next two years, Meckstroth said that the nation’s manufacturing industries will see much stronger growth.

“Manufacturing production will outpace the overall economy and is expected to show growth of 4% in 2012 and 3.6% in 2013,” MAPI said.

However, Meckstroth added, “There remain some cautionary flags”.

Major risks to the US recovery “will come from developments in the euro zone and the severity of its recession, and from concerns regarding oil prices, especially with Iran”, Meckstroth said.

He was referring to the ongoing but still uncertain European efforts to thwart a sovereign debt default by Greece and the new recession that is already under way in the EU.

In response to increasing US and international pressure on the Tehran government to open its nuclear development programme to inspection, Iran has threatened to shut down the Strait of Hormuz in retaliation.

An earlier MAPI analysis indicated that such an action by Iran to choke off the flow of crude oil through the strait’s choke point – even if short-lived – would have profound negative impact on the EU and US economies.

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

By: Joe Kamalick
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