US growth this year to be low, but ’14 better and ’15 normal

WASHINGTON (ICIS)–US gross domestic product (GDP) growth for this year will likely be lower than earlier expected, a major manufacturing group said on Friday, with the nation’s GDP expected to expand by only 1.6% by year’s end.

In its quarterly economic forecast, the Manufacturers Alliance for Productivity and Innovation (MAPI) said it expects that the US economy will do better in 2014, climbing to 2.8% GDP growth for the full year.

Except for intermittent recessions, for much of the nearly seven decades since the end of World War II the US economy has grown at an annual pace of 3% to 3.5%, a range that has long been considered “normal trend” for the nation’s economy.

Still struggling to recover from the 2008-2009 Great Recession, the US economy grew at just barely 2% in 2012 and was essentially flat in the fourth quarter of last year with a GDP expansion of only 0.1%.

In its previous quarterly economic outlook, issued in May of this year, MAPI had forecast full-year 2013 GDP growth at 1.8%.  The alliance attributed the downgrade to 1.6% to the impact of the slow first half.

US GDP in the first quarter this year was an anaemic 1.1%, but growth picked up in the second quarter to a 2.5% annualised pace.

In its first forecast for the economy in 2015, MAPI said that it expects the nation will see a return to normal trend growth with GDP expansion of 3.4% for the year.

That positive outlook for 2015 is warranted, said MAPI chief economist Daniel Meckstroth, because “outlooks for both the US economy and the global economy are falling into place”.

“First-half GDP growth in the US was slow because of a number of factors – an increase in the payroll tax, the early effects of sequestration, and states’ austerity – taking a substantial amount out of the growth rate,” Meckstroth said.

“But the payroll tax effect is diminishing and the sequester effect was not as disruptive as forecast,” he said, adding that “additionally, Europe appears to be coming out of recession.”

Meckstroth noted that US consumer spending “is holding up reasonably well” and that business investment is growing at a moderate rate.

“Housing, despite being a lesser share of the economy, is nonetheless booming, and we’re convinced housing starts will be an economic driver,” he said.

The improving housing sector, he said, “will have a positive domino effect on the supply chain and products that have been struggling, such as wood and glass and plastics products”.

The housing sector is a major downstream consuming industry for US chemicals and resins production.

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