Manufacturing Sector Sends Encouraging Signals for Supply Chain Managers

Stable consumer-driven spending and a strong forecast for business investment bode well for the manufacturing sector, according to the Manufacturers Alliance for Productivity and Innovation’s U.S. Industrial Outlook, a quarterly report that analyzes 27 major industries.

Manufacturing industrial production increased at a 2.1% annual rate during the first quarter of 2014 while inflation-adjusted GDP declined 1%. Manufacturing production grew faster than demand, thereby creating an inventory buildup that was quickly corrected in April.

Manufacturing production increased 2.6% in 2013. MAPI forecasts growth of 3.2% in 2014 and 4.0% in 2015, consistent with the March 2014 report.

“Consumer-driven manufacturing growth will be relatively stable, supported by employment gains and rising wages,” wrote MAPI chief economist Daniel J. Meckstroth, Ph.D. “Households have low debt burdens and their wealth is rising because of higher stock and home prices. Some growth themes that create an incentive for business investment are expanding energy infrastructure, revival of the housing industry supply chain, investment in manufacturing plants, and strong demand for transportation equipment. Firms are likely to invest thanks to the certainty of the two-year federal budget and the debt ceiling agreement as well as renewed growth in Europe and Japan.”

The report offers economic forecasts for 23 of the 27 industries. MAPI anticipates that 20 industries will show gains in 2014, two will remain flat, and just paper production will decline. Growth leaders include industrial machinery with a 12% increase and housing starts at 10%.

The outlook improves even more in 2015, with growth likely in all 23 industries, led by housing starts at 37% and electric lighting equipment at 12%.

According to the report, non-high-tech manufacturing production (which accounts for 95% of the total) is anticipated to increase 2.9% in 2014 and 3.7% in 2015. High-tech industrial production (computers and electronic products) is projected to expand by 6.6% in 2014 and 10.0% in 2015.

From February through April 2014, 20 of the 27 industries MAPI monitors had inflation-adjusted new orders or production at or above the level of one year prior (six more than reported last quarter), while four declined and three were flat.

Meckstroth reported that nine industries are in the accelerating growth (recovery) phase of the business cycle, 12 are in the decelerating growth (expansion) phase, four are in the accelerating decline (either early recession or mid-recession) phase, and two are in the decelerating decline (late recession or very mild recession) phase.

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