Manufacturers see further deceleration ahead for US economy

05 September 2012 18:29  [Source: ICIS news]

WASHINGTON (ICIS)--Further deceleration in manufacturing and the overall US economy is on the horizon, a major industrial group said on Wednesday as it again lowered its forecast for the nation’s GDP growth this year and next.

In its second downgrade for the US economic outlook since the beginning of the year, the Manufacturers Alliance for Productivity and Innovation (MAPI) said that it expects US gross domestic product (GDP) expansion for full year 2012 will be only 2% and that the nation’s economic growth will slow still further in 2013 to only 1.7%.

In February MAPI’s economists had forecast 2012 GDP expansion of 2.2% and 2013 growth of 2.4%.

But that outlook was lowered in the alliance’s June appraisal, dropping to 2.1% GDP growth this year and a 2.1% pace for full year 2013.

In just six months, MAPI economists have lowered their estimate for 2013 GDP growth from 2.4% to 1.7%.

In normal times, the US economy would be expected to grow at an annual pace of 3% to 3.5%. GDP rates of 2% or below are not sufficient to generate enough new jobs to keep up with population growth, much less reduce persistently high unemployment numbers.

MAPI chief economist Daniel Meckstroth said that the nation’s annual growth rate “will decelerate as the pace of business equipment spending slows”.

US businesses have money and need new equipment, Meckstroth said, but fear of the future is restraining capital spending and purchases.

“While there is pent-up demand for replacing worn equipment, productivity-improving investment and capacity expansion,” he said, “it is uncertainty about the ‘fiscal cliff', declining business activity in Europe and worries about a hard landing in China that is holding back longer-term commitments.”

The so-called “fiscal cliff” refers to the expiration of multiple consumer and business tax cuts at the end of this year and congressionally mandated major reductions in US federal government spending.

A recent congressional study warned that unless Congress and the White House can come to terms on a measure to avoid or modify those tax increases and spending cuts, they will trigger a new US recession early in 2013.

Meckstroth noted that while manufacturing output earlier this year expanded at a pace greater than the overall US economy – roaring ahead at 10% annualised growth in the first quarter this year versus GDP expansion of 2% – production growth has since fallen off its own cliff of sorts.

In the second quarter this year, he said, “manufacturing production grew at only a 1% rate compared to 1.7% for GDP”.

Meckstroth said MAPI expects that going forward, the US manufacturing sector will not show growth rates any better than the overall economy into early 2013, but that production should show more strength beginning in the second quarter next year.

The 79-year-old MAPI advocates on behalf of US manufacturing and provides economic analysis for its approximately 500 member firms, including many chemicals producers.

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

By: Joe Kamalick
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