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Manufacturing Industry Primed for a Rebound in 2016

Manufacturing industrial production has been on the decline in 2015, but that trend won't last long.

Manufacturing industrial production has been on the decline in 2015, but that trend won't last long.

According to the MAPI Foundation's quarterly U.S. Industrial Outlook, production fell at a 1% annual rate in the first quarter this year, after a 3.5% overall growth in 2014.

The report pins that decline primarily to the severe winter weather in January and February that disrupted construction, transportation, trade, and commercial activity.

Now that we have made our way through that, however, the Foundation predicts that manufacturing production will grow at least 2.5% by the end of the year and a full 4% in 2016.

"A number of factors that drove growth last year have changed in 2015," said MAPI Foundation Chief Economist Daniel J. Meckstroth, Ph.D. "A sudden, rapid decline in oil and natural gas prices was good for energy users but caused problems in energy drilling, exploration, and the material supply chain; a sudden, rapid rise in the value of the dollar hurt our trade competitiveness; a large inventory buildup this past winter drove the inventory/sales ratio to unwanted highs; and finally, consumers are cautious and risk-averse.

"Many of these shocks that are slowing growth this year will be absorbed and will not hold down growth in 2016," he added. "Presuming we have a return to a 'normal winter' this year, manufacturing should get a boost."

The MAPI Foundation anticipates that 19 of the 27 industries is watches will show gains in 2015, three will decline, and one — alumina and aluminum production — will remain flat. The top industry performers will be engine, turbine, and power transmission equipment and industrial machinery, each with anticipated annual growth of 11%.

The outlook is improved in 2016, with growth likely in 22 industries, led by housing starts at 19%.

Mining and oil and gas field machinery is expected to plummet by 18%, as manageable oil prices will continue to discourage most shale drilling and, commensurately, drilling investment.
According to the report, non-high-tech manufacturing production (which accounts for 95% of the total) is anticipated to increase 2.4% in 2015, 3.2% in 2016, and 2.9% in 2017. High-tech industrial production (computers and electronic products) is projected to expand by 4.7% in 2015, 9.1% in 2016, and 8.3% in 2017.

MAPI Foundation Forecast for Manufacturing Production
(Annual percent change)

  2015 
2016 
2017 
Manufacturing   2.5  4.0  3.1
Computer and electronic products  
 4.7  9.1  8.3
Non-high-tech manufacturing  2.4  3.2  2.9

Source(s): MAPI Foundation

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