Economy Showing Signs For 2010 Recovery

The Manufacturers Alliance Forecasts 1.9% GDP Growth For 2010

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted gross domestic product (GDP), which grew by 1.1 percent in 2008, will decline 2.9 percent in 2009 before rebounding to 1.9 percent growth in 2010. The GDP forecast for 2009 in the current MAPI report is lower than the previously anticipated 2.1 percent decline for this year projected in the February 2009 release.

“We are in a severe global recession where manufacturing is taking the brunt of the decline. Fortunately, we are starting to see signs of economic conditions beginning to stabilize,” said Daniel J. Meckstroth, Manufacturers Alliance/MAPI Chief Economist. “We expect that the eventual recovery will be sluggish due to continued deleveraging by consumers as they move away from excessive debt and to greater savings. Lagging improvement in the job market and persistently high unemployment rates will restrain the pace of the recovery."

“There are nonetheless inklings of a future firming economy,” he added, “including the stimulus package beginning to take effect, tax cuts, rising consumer spending, strengthening commodity prices, and recent improvement in the stock market. These ‘green shoots’ offer a glimmer of hope moving into the latter stages of 2009 and into 2010.”

Meckstroth believes manufacturers’ profitability will be in a better position coming out of the recession than they were after the previous downturn in 2001. “While it still may take years to recoup production levels, industry learned a lesson in frugality in 2001,” he said. “Manufacturers did not over-invest in this cycle and they proactively cut costs at the first sign of falling demand.”

Manufacturing production growth declined by 3.2 percent in 2008 and MAPI expects an 11.8 percent decline this year. Relief comes in 2010 with manufacturing production anticipated to grow by 2.1 percent. Production in non-high-tech industries is expected to decline by 11.6 percent in 2009 before increasing by 2.1 percent in 2010. High-tech industrial production is expected to decline by 10.7 percent in 2009 before rebounding to strong 8.5 percent growth in 2010.

The expenditure category for inflation-adjusted investment in equipment and software is likely to decrease by 18 percent in 2009, preceding 8.5 percent growth in 2010. Inflation-adjusted expenditures for information processing equipment are expected to fall 10.6 percent in 2009 before rising by 7.8 percent in 2010.

The forecast expects industrial equipment expenditures to decline by a severe 27 percent this year and to further decline by 1.8 percent in 2010. The outlook for spending on transportation equipment is for wide swings in either direction. The report calls for a 38.3 percent decline in 2009 followed by a 46.9 percent increase in 2010.

Exports and imports will both take a substantial downturn in 2009. After increasing by 6.2 percent in 2008, inflation-adjusted exports are anticipated to decrease by 13.6 percent in 2009 before experiencing 1.7 percent growth in 2010. Imports are expected to decline by 13.2 percent this year and to increase by 7.8 percent next year. The reduction in employment will continue as the current MAPI forecast anticipates unemployment to average 9.1 percent in 2009 and 9.9 percent in 2010.

The price per barrel of imported crude oil is expected to average $50.40 in 2009 before heading upward to $62.50 per barrel in 2010. While high by historical standards, this compares favorably to the $92.30 price per barrel in 2008.

For more information, visit www.mapi.net.

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