US manufacturers lower outlook for production, GDP growth

22 June 2012 18:20  [Source: ICIS news]

WASHINGTON (ICIS)--A major US manufacturing group on Friday lowered its forecast for US economic growth this year and into early 2013, in part because robust production activity in the first quarter is expected to cool considerably in the second half.

The Manufacturers Alliance for Productivity and Innovation (MAPI) said it was lowering its outlook for US gross domestic product (GDP) growth to 2.1% for the second half of this year and the first half of 2013.

“We forecast that GDP growth will increase at annual rates of 2.1% over the next five quarters,” said MAPI chief economist Daniel Meckstroth.

“These growth rates are categorized as a relatively modest pace and well below what would be considered normal for an expansion following a severe recession,” he said.

“Consumers are deleveraging and are reducing debt and therefore can only increase spending commensurate with employment and wage growth,” he added.

US GDP grew at an anaemic 1.9% in the first quarter this year, following a 3% growth rate in the fourth quarter of 2011.  The US unemployment rate edged up to 8.2% in May from its earlier 8.1%.

The first official estimate of the nation’s second quarter GDP performance will be made by the Commerce Department on 27 July.

MAPI had earlier forecast a full-year GDP growth of 2.2%. 

If MAPI’s new forecast of 2.1% second-half growth is accurate, that pace of expansion combined with the first quarter’s 1.9% GDP would likely mean an overall 2012 GDP of around 2%.

Part of MAPI’s lower expectation for overall US GDP expansion this year and early 2013 was attributed to a new cool-down in manufacturing growth.

The alliance noted that US manufacturing industries expanded “at a scorching 10% annual rate in the first quarter of this year, [but] it will decelerate to an average of 3% for the remainder of the year”.

Although 3% annual growth for manufacturing is good and considerably better than the outlook for the overall economy, MAPI indicated that industrial production going forward might have been better.

“The positive news for manufacturing is tempered by anticipated slow growth in the overall economy,” the alliance said.

In addition, while there is strong demand among emerging economies worldwide for equipment and infrastructure improvement that would benefit US manufacturing exports, Meckstroth cautioned that “One negative is that the recession in Europe will have the effect of cancelling out any net benefit from trade this year”.

On Wednesday this week the Federal Reserve Board, the US central bank, also lowered its outlook for the nation's economy through the rest of this year.

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

By: Joe Kamalick
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