Manufacturing economy improves, but industry watchers say moderation is still the norm.
A number of positive economic signals dotted the industry landscape recently, but headwinds remain as the manufacturing economy continues its slow climb back toward sustained growth. In a June report, economist Cliff Waldman of the Manufacturers Alliance for Productivity and Innovation (MAPI) pointed to continued improvement in global economic growth in 2017 combined with a low likelihood of recession before 2020 as key reasons for a stronger outlook here at home. Waldman is chief economist for the MAPI Foundation, the group’s research arm.
“The upswing in global growth that began in earnest in the winter of 2016 continues,” Waldman wrote in a June 14 economic forecast, noting that the MAPI Foundation’s outlook remains relatively unchanged since its last report in February. “Between 2017 [and] 2020, we expect annual U.S. GDP growth to average 2.2% and U.S. manufacturing growth to average 1.6% over the three-year period.”
Waldman says consumer spending continues to drive U.S. economic growth and that capital spending remains a drag—with no indications that the latter will soon accelerate from its post-2000 malaise. There are some bright spots on the investment horizon, however. The MAPI report points to two investment-related subsectors—drilling equipment and industrial machinery—as promising areas in 2017, forecasting growth of 13% and 11%, respectively, this year.
Consumer-related industries remain the brightest spot overall, however, with computer-related industries and machinery leading the way, according to MAPI. The computer sector is set to be a manufacturing growth leader, averaging 4.3% growth through 2020, with 5.6% and 6.4% growth in 2017 and 2018, respectively. The machinery sector will see an average of 4.2% growth through 2020, Waldman said.
This is in line with other reports, particularly the May Report on Business from the Institute for Supply Management, which listed computer and electronic products as well as machinery as two industries reporting growth during the month. ISM’s Purchasing Manager’s Index (PMI)—a key indicator of U.S. economic growth—improved in May after dropping slightly in March and April. The May PMI registered 54.9%, up a tenth of a point compared to April, but still above the 50-point mark indicating growth in the overall manufacturing sector. Although the next PMI report is due out July 3, Waldman pointed to the overall strength of the index over time as further evidence of the improving economy.
“Even accounting for the modest PMI dip in March and April, the progression of the index, since the recent low of August 2016 [49.4], has been impressive,” he said. “It suggests sustainability of moderate improvement in factory sector growth.”
Recent news from the semiconductor market bodes well for the electronics industry, too. In its most recent outlook, the Semiconductor Industry Association reported 21% growth in worldwide semiconductor sales in April and predicted double-digit sales for the year. The group said it expects yearly semiconductor sales growth of nearly 12% in 2017, followed by more modest growth of nearly 3% in 2018 and slightly lower sales in 2019. Double-digit sales growth was reported in all major regions during the month.
“Although driven in part by tremendous growth in the memory market, sales of non-memory products also grew by double digits in April, and all major regional markets posted substantial year-to-year gains,” said John Neuffer, SIA president and CEO. “The global market is projected to experience significant annual growth this year, with slower growth expected next year and roughly flat sales in 2019.”
The key takeaway is that moderation remains the buzzword for U.S. manufacturing growth, and economists such as Waldman emphasize that this may indeed be the new normal for the sector. Historical comparisons have done little to predict growth patterns in manufacturing and industrial circles since the financial crisis of the early 2000s, although in comparison to very recent history, conditions are certainly looking up.
“In spite of impediments from the still elevated dollar and the weak capital spending, improvement in global economic growth resulted in a positive impact on the U.S. manufacturing outlook,” Waldman also noted in his June 14 forecast. “While our forecast predicts manufacturing growth will remain weaker than historical norms, we expect it to more than double from the feeble average rate of the 2013-2016 period.”