Chad Moutray Chief Economist
National Association of Manufacturers
www.nam.org
ViewPoints M
anufacturers have been eagerly waiting for the economy to gain some traction, and the 2014 forecasts should give them a degree of encouragement. The Federal Reserve Board predicts growth of 2.9–3.1% for 2014, suggesting that things might finally start to pick up next year. Indeed, it could be the first time since 2005 that real GDP averages 3.0% or more.
Nonetheless, these outlooks illustrate a palpable hesitance, much as we have had for the past few years. The fiscal and political environments remain uncertain, especially with ongoing budget negotiations and another forthcoming debt ceiling limit being reached. This serves as yet another reminder that government could once again thwart economic progress. Indeed, US real GDP will probably expand around 2.3% in 2013, a disap- pointing result given the robust growth in the first couple months. Government uncertainty and weakened domestic and global demand dampened growth over the past 12 months. Despite that, the manufactur- ing sector experienced accelerated activity in the second half of 2013, which should bode well for continued growth. The Institute for Supply Management’s Purchasing Managers Index (PMI) has reflected positive growth in manufacturing activity since July, having improved from 49.0 in May to 57.3 in November. Strength of sales played a leading role, with the index of new orders exceeding 60.0 for four straight months. Overall, manufacturers are mostly positive about sales and output for 2014. In the most recent National Association of Manufacturers/Industry- Week (NAM/IW) Survey of Manufacturers, 78.1% of the respondents were positive in their company’s outlook in the fourth quarter of 2013. Two-thirds expect their sales to increase over the next 12 months, by an average of 3.0%. This suggests modest gains in new orders over the next year. Fortunately, the NAM/IW survey also found that manufacturing output should continue to gain momentum throughout the first half of 2014. A re- gression model estimates that production will grow at a 4.0% annual rate between now and the end of the second quarter—another hopeful sign. The uptick in manufacturing activity should boost the overall economy. Real GDP rose a surprisingly strong 3.6% in the third quarter of 2013, an improvement from the 2.5% gain in the second quarter. One could easily discount the third quarter data, with 1.7 percentage points of that growth
136
ManufacturingEngineeringMedia.com | January 2014
Manufacturing Growth Continues, Despite Uncertainty
stemming from inventory replenishment. At the same time, we have begun to see relatively decent bright spots from consumer and business spending of late. Drags on growth have come from net exports and government spending, even as both had very small positive contributions in the third quarter. The key to stronger growth in 2014—and, particularly, our ability to reach annual real GDP growth of 3.0% or higher—will be two things. First, consumers and businesses need to become more confident in the economic landscape, building on recent modest spending gains. In the third quarter data, consumer goods spending rose an annualized 4.1% for the quarter, with larger increases for durable goods purchases. While this marked a decent pace, it could be improved. On the investment side, higher spend- ing on residential and nonresidential structures and industrial equipment showed promise. Here, too, uncertainty in the marketplace and higher borrowing costs have dampened growth.
The US continues to become more attractive for manufacturing investment.
Secondly, we need to see better numbers on the international front.
Year-to-date growth in manufactured goods exports has risen just 2.2% through the first 10 months of 2013 relative to the same timeframe in 2012. This slow pace has served to reduce demand for our products, dampening output growth and sentiment. With a better global economic environment expected for next year, we should see improvements in our ex- port sales, which should help boost economic and manufacturing activity. Overall, prospects for manufacturing in the new year and beyond are bright. I have not even discussed such topics as the impacts of shale exploration on manufacturing or the trend of the United States becoming more attractive for manufacturing investment, both of which should make one bullish for the sector.
There are definite downside risks to growth, mostly coming from gov- ernment actions. With that in mind, policymakers would be wise to reduce uncertainties and adopt pro-growth measures that will enable these more positive assessments to come to fruition. ME
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126 |
Page 127 |
Page 128 |
Page 129 |
Page 130 |
Page 131 |
Page 132 |
Page 133 |
Page 134 |
Page 135 |
Page 136 |
Page 137 |
Page 138 |
Page 139 |
Page 140