Lower Oil Prices Help Consumer Spending

Lower oil prices at the gas pump and elsewhere mean more purchasing power for U.S. consumers and provide a relatively positive near-term economic outlook, according to a new report.

The MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation, released its quarterly economic forecast, predicting that inflation-adjusted gross domestic product will expand 3.0% in 2015, up from 2.8% in the November 2014 report, and 2.7% in 2016, a decrease from 3.0% in the previous forecast.

Manufacturing production is expected to outpace GDP, with anticipated growth of 3.7% in 2015 (an increase from 3.5% in the previous forecast) and 3.6% in 2016 (a decline from 3.9% in the November report).

"Consumer spending is stronger because of lower oil prices, and manufacturing job growth is being pulled by increased production," said MAPI Foundation Chief Economist Daniel J. Meckstroth, Ph.D. "The fact that employment is continuing to grow shows the U.S. economy is maintaining its momentum. Confidence indicators are strong, the unemployment rate is low, and credit is available. More people with more income tends to be self-reinforcing."

Production in non-high-tech manufacturing is expected to increase 3.4% in 2015 and 3.1% in 2016. High-tech manufacturing production, which accounts for approximately 5% of all manufacturing, is anticipated to grow 6.1% in 2015 and 9.1% in 2016.

The forecast for inflation-adjusted investment in equipment is for growth of 8.4% in 2015 and 6.9% in 2016. Capital equipment spending in high-tech sectors will also rise. Inflation-adjusted expenditures for information processing equipment are anticipated to increase by double digits—12.8% in 2015 and 11.8% in 2016. The MAPI Foundation expects industrial equipment expenditures to advance 10.4% in 2015 and 6.4% in 2016. The outlook for spending on transportation equipment is for an increase of 3.8% in 2015 preceding a 1.4% decline in 2016.

Spending on nonresidential structures is anticipated to decrease by 5.1% in 2015 due to a major decline in mining and drilling activity before rebounding to 5.3% growth in 2016. Residential fixed investment is forecast to increase 10.4% in 2015 and 11.4% in 2016. Meckstroth anticipates 1.17 million housing starts in 2015 and 1.34 million in 2016.

A strong dollar and strong economy relative to our trading partners will slow economic growth this year and next. Inflation-adjusted exports are anticipated to increase 3.3% in 2015 and 2.9% in 2016. Imports are expected to grow 6.3% in 2015 and 6.7% in 2016. The MAPI Foundation forecasts overall unemployment to average 5.6% in 2015 and 5.3% in 2016.

The manufacturing sector added 210,000 jobs in 2014. The outlook is for an increase of 282,000 jobs in 2015, a jump from the 202,000 anticipated in the November report. Meckstroth envisions 162,000 manufacturing jobs to be added in 2016, a healthy increase from 16,000 in the previous forecast.

The refiners’ acquisition cost per barrel of imported crude oil is expected to average $49.50 in 2015 and $59.00 in 2016, a significant downward revision from $80.00 and $80.60, respectively, in the November forecast.

Kristin Graybill