MAPI Foundation U.S. Industrial Outlook: Strong Dollar Offsets Low Energy Prices

The manufacturing outlook for 2015 and 2016 calls for a minor acceleration from the 2014 growth rate, according to the MAPI Foundation's U.S. Industrial Outlook, a quarterly report that analyzes 27 major industries. The MAPI Foundation is the research affiliate of the Manufacturers Alliance for Productivity and Innovation.

Manufacturing industrial production increased at a 3.8% annual rate in the fourth quarter of 2014 and posted 3.6% growth for the year as whole—over a percentage point higher than the 2.4% gain in the overall economy.

The MAPI Foundation forecasts manufacturing production growth of 3.7% in 2015 and 3.6% in 2016. The 2015 forecast is an increase from 3.5% and the 2016 forecast is a decrease from 3.9% in the December 2014 report. Manufacturing will continue to grow faster than the overall economy, which the MAPI Foundation anticipates will advance by 3.0% in 2015 and 2.7% in 2016.

"The good news is that low energy prices lower manufacturing costs and allow consumers to buy more non-energy goods and services," wrote MAPI Foundation Chief Economist Daniel J. Meckstroth, Ph.D. "The offset is that low prices will depress the energy infrastructure buildup and the strong dollar will raise the trade deficit in manufacturing.

"The shifting forces offset and leave overall manufacturing production growing close to the same pace as last year—though thankfully, still faster than the pace of growth in the overall economy," he noted.

With an improving employment outlook—meaning more workers with incomes—Meckstroth predicts solid consumer spending and purchases of big-ticket items such as motor vehicles, houses, and appliances. Business investment should ramp up as well; Meckstroth noted that firms have cash and are profitable, utilization rates are high, and credit is available.

The report offers economic forecasts for 23 industries. The MAPI Foundation anticipates that 21 will show gains in 2015, 1 will remain flat, and only 1—mining and oil and gas field machinery—will decline. The top industry performer will be housing starts with growth of 16%.

The outlook remains bright in 2016, with growth likely in 22 industries, led by housing starts at 14%. Mining and oil and gas field machinery is expected to plummet by 19%, as lower oil prices will discourage most shale drilling which will affect oil field investment.

According to the report, non-high-tech manufacturing production (which accounts for 95% of the total) is anticipated to increase 3.4% in 2015 and 3.1% in 2016. High-tech industrial production (computers and electronic products) is projected to expand by 6.1% in 2015 and 9.1% in 2016.

During the report period (November 2014 through January 2015), 23 of the 27 industries Meckstroth monitors had inflation-adjusted new orders or production at or above the level of one year prior, while 3 declined and 1 was flat, consistent with the previous report.

Meckstroth reported that 13 industries are in the accelerating growth (recovery) phase of the business cycle, 10 are in the decelerating growth (expansion) phase, 3 are in the accelerating decline (either early recession or mid-recession) phase, and 1 (paper production) is in the decelerating decline (late recession or very mild recession) phase.