Manufacturing Growth Slows to 2.8% in 2007: NAM 2007 Economic Outlook

Despite the drag from residential housing, solid growth in other sectors, particularly business investment and trade, will limit the negative impact of housing on the overall economy, and will find a "soft landing" in 2007, according to the National Association of Manufacturers' 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

 

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