Manufacturing Growth Slows to 2.8% in 2007: NAM 2007 Economic Outlook
NAM projected that the manufacturing sector will grow by 2.8% in the coming year and 2.7% in 2008, while the overall GDP will grow at 2.9% in 2007, and 2.7% in 2008. This compares to 4.5% manufacturing growth and 3.1% GDP growth in 2006.
Over the past 4 quarters, business investment spending has increased by 8.3 percent – the fastest 4-quarter pace in the expansion. This growth in business investment has been fueled by soaring profits, which over the past year (Q3 2005 to Q3 2006) increased by 31% (the fastest 4-quarter pace in 22 years) to a record level of $1.7 trillion. At the same time, corporate cash flow (funds available for investment) rose by 13% to a level of $1.4 trillion.
Other Highlights from NAM 2007 Economic Outlook:
- Business Investments: Fueled by soaring profits and corporate cash flow, business investment spending has increased by 8.3% over the past four quarters, but will begin to decelerate, growing at a more restrained 6.4% in the coming year, and 4.1% in 2008.
- Trade Deficit: The combination of a more-competitive dollar and strong exports growth will help the trade deficit decline from a high of 5.9% of GDP in 2006 to 5.4% by 2008.
- Interest Rates: The Federal Reserve is expected to ease monetary policy in the coming year by lowering the federal funds rate by 50 basis points by mid-2007.
Economic Expansion: The economy has increased by 15.5% over the course of the current expansion since 2001, nearly identical to the 15.2% increase in GDP during the first 19 quarters of the expansion in the 1990s.
Manufacturing. Over the past 4 quarters, manufacturing output has risen by 6.3 percent – the fastest pace in 8 ½ years. This is likely a cyclical peak in the pace of growth in the manufacturing sector. Going forward, manufacturing production will moderate along with the overall economy.
Productivity, Wages, and Inflation: Overall productivity is expected to increase by 2.2% in 2007. And, with overall hourly compensation growing by 4.7%, this implies unit labor costs, the foundation for underlying inflation, to increase by 2.5% in 2007. Overall CPI will rise by a similar 2.6% next year.
Oil Prices: The price of oil is expected to remain at $65 dollars a barrel through 2008 while the price of natural gas will increase to $9 per mm-btu next year and 10 per mm-btu in 2008.
NAM’s Economic Forecast is at: http://www.nam.org/2007economicforecast
Some Facts About U.S. Manufacturing
Standing by itself, U.S. manufacturing would be the 8th largest economy in the world. U.S. manufacturing (from NAM):
- is responsible for more than 70% of private sector research and development
- productivity increased by more than 50% in the past decade;
- contributes more than 60% of U.S. exports or about $50 billion a month;
- pays wages and benefits that are about 25% higher than in non-manufacturing jobs;
- multiplies every dollar spent into an additional $1.37 in economic activity