U.S. Industrial Outlook: Manufacturing Still Recovering

Every year, federal statistical agencies incorporate all new available economic information and issue revised data. The annual revisions are typically relatively minor; every five years, however, government statisticians use the results of a census of business to establish a new benchmark that can lead to large revisions extending back over the previous half-decade.

The Federal Reserve’s industrial production statistics and the Census Bureau’s Manufacturers’ Shipments, Inventories, and Orders data series were revised in August 2015, integrating data from the 2012 Economic Census, 2013 Annual Survey of Manufactures (ASM), and revised data from the 2011 ASM.

The bottom line is that manufacturing growth since 2010 was 4.5% slower than last reported, averaging about 0.9% less growth each year. The largest downward revisions were in 2012 and 2013. Manufacturing production was previously set at 3.4% growth in 2012 and 3% in 2013, but was revised down to 1.5% and 1.7%, respectively.

We thought that manufacturing had fully recovered from the 2008-2009 recession last year. Unfortunately, the revisions show manufacturing is still in the recovery phase of the economic cycle. Manufacturing industrial production has to grow another 3.4% in order to reach the pre-recession production level achieved in December 2007—that’s at least another year of manufacturing industrial production growth.

Table 1 – MAPI Foundation Forecast for Manufacturing Production

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Among the highlights of this report’s cyclical analysis of 27 industries are these findings and the MAPI Foundation forecasts shown in Table 2:

  • New housing starts will grow at a rapid pace from a very low level. The 2015-2017 growth rates will favor single-family starts, as multi-family starts will grow at a slower pace after many years of leading the housing recovery. The housing supply chain (wood products, nonmetallic mineral products, HVAC, household appliances, furniture, and construction machinery) is ramping up.
  • Motor vehicles and parts production growth is surprisingly strong and low gas prices encourage the purchase of large, expensive vehicles—favoring the domestic industry. We expect production growth to remain strong this year and next but flatten out in 2017.
  • The commercial, industrial, and amusement/recreation construction segments are leading nonresidential construction activity. Public works construction picked up recently but should grow slower than the overall economy. Public utilities and mining and drilling construction will post large declines this year.
  • Medical equipment and supplies production decelerated from double the rate of growth in manufacturing to merely average. The utilization rate of medical equipment is rising as a result of the consolidation of hospitals, insurance companies, and physician practices.
  • A rebound in pharmaceutical production is coming from new blockbuster patent-protected products.
  • Mining and drilling equipment production will decline 14% in 2015 and fall 17% in 2016.
  • Total machinery production will be flat this year. Agricultural equipment and drilling equipment will suffer declines this year and next. Construction and industrial machinery will have moderate growth but commercial and service equipment should post little growth in 2015. Commercial and service equipment should rebound in 2016 and 2017.
  • Computers and electronic products production continues to disappoint this year.
  • Modest manufacturing growth, the strong dollar, excess capacity in China’s manufacturing sector, and falling commodity prices will significantly hurt the primary metals industry. Steel production will post a double-digit decline this year.

Table 2 – MAPI Foundation Forecasts for Manufacturing and Related Production

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Industries in the Current Business Cycle
The pairs of figures for each of the 27 industries analyzed in this report show annual levels of activity and monthly rates of change. Forecasts of physical production are shown through 2017. The rate of change shown in Figures 2 through 28 is 3/12 (the year-over-year percentage change in a three-month moving average); this measure illustrates the cyclical position of each industrial sector.

Figure 1 – Industrial Sector by Phase of Cycle, August 2015

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Individual Analysis for 27 Industrial Sectors
Highlights of inflation-adjusted business activity in selected manufacturing, drilling, and construction markets are discussed below. Please note that the Federal Reserve changed the base year for the industrial production statistics from 2007 to 2012. The production level in 2012 is equal to an index level of 100.

Figures 2a & 2b

F=Forecast Source(s): U.S. Bureau of the Census and MAPI Foundation

F=Forecast
Source(s): U.S. Bureau of the Census and MAPI Foundation

Housing starts (Figures 2a and 2b)

  • Housing starts should increase 11% to 1,116,000 units in 2015, 18% to 1,315,000 units in 2016, and 10% to 1,447,000 units in 2017. Single-family units will lead the growth going forward.
  • The Case-Shiller housing price index was up 1% in the three months ending June compared with the previous three months and was 4% above the previous year.
  • Home sales came out of the severe winter at a higher level than last year. In the three months ending June 2015, new home sales were 19% above year-ago levels but down 7% at an annual rate from the previous three months.
  • The inventory of new homes was 5.4 months of supply in June 2015, indicating moderately tight supply, and was down from 5.8 months in June 2014.
  • The Federal Reserve has stopped adding mortgage-backed securities to its balance sheet but is replacing those that mature. They are signaling an interest rate increase in September. The withdrawal of Fed purchases and upward interest rate talk does not seem to be having an adverse effect on mortgage rates. In mid-August, mortgage rates remained at 3.9%, the same as at the beginning of this year.
  • In the second quarter of 2015, the combined percentage of all mortgage loans in foreclosure or delinquent was 7.4%; the rate is down to 2007 levels.

Figures 3a & 3b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Motor vehicles and parts production (Figures 3a and 3b)

  • Motor vehicles and parts production is expected to increase 9% in 2015, rise 7% in 2016, and remain flat in 2017. Auto and light truck sales should be 17.1 million units in 2015, 17.5 million units in 2016, and 17.8 million units in 2017.
  • Overall production was up 8% in the three months ending July 2015 compared with the same period one year ago. Production was up 8% for automobiles and 6% for light trucks and utility vehicles. Auto parts production increased 5% over year-ago levels.
  • Heavy-duty truck production increased 13% in the three months ending July 2015 over the same period one year ago; truck trailer production rose 11%.
  • Heavy-duty truck production should see growth of 19% in 2015 and 4% in 2016 before declining 10% in 2017.
  • The production of campers and travel trailers fell 1% in the three months ending July 2015 over the same period one year earlier; big-ticket motor home production also fell 1%.
  • Motor vehicles and parts imports were up 6% while exports fell 3%. The industry’s import to export ratio is 2.4, so the sizable trade deficit was $5.6 billion more negative in the second quarter of 2015 compared with one year earlier.

Figures 4a & 4b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Household appliance production (Figures 4a and 4b)

  • The forecast for household appliance production is for growth of 5% in 2015, 6% in 2016, and 4% in 2017.
  • Production grew 5% in the three months ending July 2015 compared with the same period one year ago; production of small appliances was up 8% and large appliances increased 4% (the production value of major appliances is twice as large as that of small appliances). The momentum indicator, relating production from May to July 2015 to that of the previous three months, shows production accelerated at a 13% annual rate.
  • Existing home sales rose 9% in the three months ending in July 2015 from one year earlier. Both new and existing housing activity is growing rapidly.
  • Household appliances’ import to export ratio is 5.9—one of the highest adverse trade ratios in manufacturing. Household appliance imports increased 8% and exports were flat, and thus the trade deficit was $490 million more negative in the second quarter of 2015 compared with one year ago.

Figures 5a & 5b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Pharmaceutical and medicine production (Figures 5a and 5b)

  • Pharmaceutical and medicine production should increase 3% in 2015, 4% in 2016, and 5% in 2017.
  • Production rose 3% in the three months ending July 2015 compared with the same period one year ago and the recent quarter-to-quarter momentum rose at a 2% annual rate.
  • Growth drivers include new product launches and new spending for innovative treatments; further, fewer patents are expiring than in the past few years.
  • IMS Institute reports that last year, patients had 3.0% fewer office visits and 1.7% fewer hospital admissions but filled 2.1% more prescriptions.
  • Employment in pharmaceuticals and medicine was up 2% in the second quarter of 2015 compared with the same period one year earlier. There was a 2% gain in pharmaceuticals and 1% growth in miscellaneous medicinal and biologicals employment.
  • Pharmaceutical imports rose 25% while exports expanded 4%. The import to export ratio is 2.1, so the already large trade deficit was $5.3 billion more negative in the second quarter of 2015 compared with one year earlier.

Figures 6a & 6b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Iron and steel products production (Figures 6a and 6b)

  • Iron and steel production is forecast to decline 11% in 2015, increase 3% in 2016, and post no growth in 2017.
  • Output fell 9% in the three months ending July 2015 versus the same period one year ago. Compared with February to April, the production momentum rose at a 26% annual rate.
  • Capacity utilization in the U.S. steel industry was 74% in the week of August 15, 2015 (lower than the 80% in the same week one year earlier). The steel industry has a much lower factory utilization rate than overall manufacturing.
  • U.S. durable goods manufacturing industries’ production momentum accelerated 3% during May to July 2015 compared with February to April; these are predominantly steel-intensive industries.
  • The large difference between demand and supply suggest that trade, prices, and inventory explain the decline in steel production.
  • Steel production was up 1% in Europe (28 countries), fell 3% in Russia, and fell 4% in Korea in the three months ending June 2015 compared with year-ago levels. China’s steel production was unchanged but Taiwan’s was down 17%. Steel production in Brazil rose 3%.
  • Steel product imports fell 20% while exports fell 17%. Steel’s import to export ratio is 2.7, so the trade deficit was $1.5 billion less negative in the second quarter of 2015 compared with one year ago.

Figures 7a & 7b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Alumina and aluminum production and processing (Figures 7a and 7b)

  • Alumina and aluminum production should be up 5% in 2015, 5% in 2016, and 4% in 2017.
  • Production was up 3% in the three months ending July 2015 compared with the same period one year ago. Primary aluminum production fell 4% from year-ago levels. Fortunately, production of aluminum sheet, plate, and foil and extruded products, which account for 89% of the industry, increased 4%.
  • Production in aluminum-using industries was positive: truck trailer production rose 11%, light truck and utility vehicle production rose 6%, and aerospace production grew 2% from May to July 2015 compared with year-ago levels.
  • The Metals Service Center Institute reported that aluminum product shipments from U.S. metals services centers fell 1% in July 2015 versus the same month one year ago.
  • Alumina and aluminum production and processing imports rose 11% while exports fell 3%. Alumina and aluminum’s import to export ratio is 2, so the trade deficit was $415 million more negative in the second quarter of 2015 compared with one year earlier.

Figures 8a & 8b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Fabricated metal products production (Figures 8a and 8b)

  • Fabricated metals production should post moderate gains of 1% in 2015 and 3% in both 2016 and 2017.
  • Production was unchanged in the three months ending July 2015 relative to the same period one year ago and the quarter-to-quarter momentum was flat.
  • The types of fabricated metal products saw mixed production activity relative to one year ago. Forging and stamping was up 7%, architectural and structural metals rose 3%, and coating, engraving, and heat treating rose 3% in the three months ending July 2015 relative to the same period one year ago. Machine shop turned products and fasteners fell 3%, however.
  • Fabricated metal products imports increased 6% and exports fell 2%. Fabricated metal products’ import to export ratio is 1.6, so the trade deficit was $1.2 billion more negative in the second quarter of 2015 compared with one year earlier.

Figures 9a & 9b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Basic chemicals production (Figures 9a and 9b)

  • Basic chemicals production should increase 2% in 2015, 3% in 2016, and 4% in 2017.
  • Overall production was up 4% in the three months ending July 2015 compared with the same period one year ago and the quarter-to-quarter momentum was a positive 8%.
  • Petrochemical and other organic chemicals production was up 5% in the three months ending July 2015 versus one year ago. Petrochemical manufacturing includes ethylene, propylene, butylene, toluene, styrene, xylene, ethyl benzene, and cumene made from petroleum and natural gas.
  • Inorganic chemicals production rose 2% in the three months ending July 2015 compared with the same period one year ago. The growth was across the board—alkalies, chlorine, acids, dyes, pigment, industrial gases, etc.
  • A report from U.S. freight railroads indicates that chemical car loadings were unchanged in the first 32 weeks of 2015 versus year-ago levels.
  • Basic chemicals imports were down 17% while exports declined 8%. Basic chemicals’ import to export ratio is 0.9, so the trade account grew $1.5 billion more positive in the second quarter of 2015 relative to one year earlier.

Figures 10a & 10b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Paper production (Figures 10a and 10b)

  • Paper production should be unchanged in 2015, increase 1% in 2016, and post no growth in 2017.
  • Production fell 1% in the three months ending July 2015 compared with the same period one year ago. A more short-term (quarter-to-quarter) analysis reveals negative 1% production momentum.
  • In a related sector, industrial production of food products was up 2% in the three months ending July 2015 compared with year-ago levels.
  • A report from the American Trucking Association indicated that truck tonnage increased 4% in July 2015 from one year ago.
  • Paper imports increased 1% while exports declined 1%. The import to export ratio is 0.9 in the paper industry; the trade surplus was $133 million less positive in the second quarter of 2015 compared with one year earlier.

Figures 11a & 11b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Construction machinery production (Figures 11a and 11b)

  • Construction machinery production should increase 7% in 2015, 1% in 2016, and 3% in 2017.
  • Production rose 10% during May to July 2015 versus the same period one year earlier. The quarter-to-quarter momentum was very strong.
  • Private nonresidential construction activity expanded 11% and public works construction grew 5% in the three months ending June 2015 compared with the same period one year ago.
  • Logging production increased 2% from May to July 2015 versus one year ago.
  • Mining and quarrying production fell 7% in the three months ending July 2015 compared with the same period one year ago. There was growth in quarrying and nonferrous metal mining but production declines in precious metals and coal mining.
  • Construction equipment’s import to export ratio was 1.6 in the three months ending July 2015. Imports rose 10% but exports declined 20%; the small trade deficit became $1.3 billion more negative in the second quarter of 2015.
  • Caterpillar reports that their worldwide machine deliveries to users for retail sales, adjusted for inflation, were down 11% in the three months ending July 2015 versus the same period one year earlier. Construction industries’ sales were down 14% and resources industries’ equipment fell 6%.

Figures 12a & 12b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Mining and oil and gas field machinery production (Figures 12a and 12b)

  • Mining and oil and gas field machinery production is predicted to decline 14% in 2015, fall 17% in 2016, and then grow 14% in 2017.
  • Production fell 15% in the three months ending July 2015 compared with one year earlier and the quarter-to-quarter momentum was very negative.
  • WTI oil prices were $42 in mid-August, which is down from $60 in mid-June. A price of $50 is thought to be the approximate breakeven point for shale oil drilling, so production in the supply chain will decline.
  • The Energy Information Administration projects that coal production will fall 8% in 2015 and grow 1% in 2016.
  • Gold and silver mining in the United States fell 9% in the three months ending July 2015 compared with the same period one year earlier.
  • Oil and gas well drilling production fell 53% in the three months ending July 2015 compared with one year earlier. Recent momentum in the drilling market is very negative.
  • Mining and oil and gas field machinery production is very export-oriented—the import to export ratio is only 0.3. Imports fell 14% while exports fell 27%; the trade surplus was $658 million less positive in the second quarter of 2015 compared with one year earlier.

Figures 13a & 13b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Industrial machinery production (Figures 13a and 13b)

  • Industrial machinery is capital equipment for specific nonmetallic manufacturing industries such as woodworking, plastics, paper, textiles, printing, food products, and semiconductors.
  • Industrial machinery production should grow 4% in 2015, 9% in 2016, and 6% in 2017.
  • Production increased 6% in the three months ending July 2015 compared with the same period one year earlier and the momentum indicator was moderately positive.
  • In related sectors, wood products production fell 2%, paper production fell 1%, textile mill production rose 5%, food production increased 2%, and plastic products production expanded 3% from May to July 2015 compared with the previous year.
  • The Semiconductor Equipment Association reported that equipment bookings in the three months ending June 2015 were 4% higher than in the same period one year earlier.
  • Construction of new manufacturing plants increased 62% (in inflation-adjusted dollars) in the three months ending June 2015 from one year ago.
  • Industrial machinery imports were down 1% while exports increased 18% in the second quarter of 2015 compared with one year ago. The industrial machinery industry is export-oriented, with a 0.8 import to export ratio. The trade surplus increased $666 million in the second quarter of 2015 relative to the same period last year.

Figures 14a & 14b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Ventilation, heating, air conditioning, and commercial refrigeration equipment production (HVAC) (Figures 14a and 14b)

  • HVAC production growth is forecast to be 1% in 2015, 5% in 2016, and 4% in 2017.
  • Production fell 2% in the period of May to July 2015 on a year-over-year basis and the quarter-to-quarter momentum was negative.
  • In related sectors, construction spending for home improvement was flat but inflation-adjusted private nonresidential construction rose 11% in the three months ending June 2015 versus one year ago.
  • Construction related to refrigeration is mixed. Inflation-adjusted food manufacturing construction fell 7% but inflation-adjusted food store construction rose 9% in the three months ending June 2015 versus one year ago.
  • HVAC has an import to export ratio of 2.0. Imports increased 3% while exports rose 4% and thus the trade deficit was $26 million more negative in the second quarter of 2015 compared with one year earlier.

Figures 15a & 15b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Metalworking machinery production (Figures 15a and 15b)

  • Metalworking machinery consists of industrial molds; metal cutting and forming machine tools; special tools, dies, jigs, and fixtures; and miscellaneous metalworking machinery (cutting tools and rolling mill machinery).
  • We predict that metalworking machinery production will increase 1% in 2015, 5% in 2016, and 4% in 2017.
  • Production was flat in the three months ending July 2015 over year-ago levels and the quarter-to-quarter momentum was unchanged.
  • The U.S. Census Bureau reported that metalworking machinery orders (in dollars) grew 10% in the three months ending June 2015 on a year-over-year basis.
  • Metalworking machinery imports fell 16% and exports declined 7% in the second quarter of 2015 compared with one year earlier. The import to export ratio is 2.7, so the trade deficit was $713 million less negative in the second quarter of this year versus one year ago.

Figures 16a & 16b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Engine, turbine, and power transmission equipment production (Figures 16a and 16b)

  • Engine, turbine, and power transmission equipment is used for freight, natural gas transmission, marine engines, and electric power.
  • Engine, turbine, and power transmission equipment production should increase 7% in 2015, 3% in 2016, and 4% in 2017.
  • Production grew 8% in the three months ending July 2015 compared with the same period one year earlier but the quarter-to-quarter momentum was negative.
  • Heavy-duty truck production was up 13% and the production of ships and boats fell 2% in the three months ending July 2015 over year-ago levels. The growth in marine construction occurred in both shipbuilding/repairing and boatbuilding. Ship and boat production is predicted to show no growth through 2017 on an annual basis.
  • Exceptionally low natural gas prices in the United States led to a shift to natural gas turbines for electric generation. Electric power construction spending fell 27% in the three months ending June 2015 versus the same period one year ago.
  • Turbines compress gas in pipelines and power oil and gas well drilling. Pipeline and storage construction fell 5% in the three months ending June 2015 versus the same period one year ago. Oil and gas drilling in the United States fell 53%.
  • The American Wind Energy Association reported that during the second quarter of 2015, 1,661 megawatts of wind turbines were installed—a huge gain from the 1,016 megawatts installed one year earlier. Both periods were certainly influenced by the severe winter weather in the first quarter. A wind tax credit was available for projects that started in 2013; as a result, a large number of projects are under construction to be completed over the next few years.
  • Engine, turbine, and power transmission equipment imports increased 5% and exports fell 6%. The industry has a 1.0 import to export ratio and thus the trade surplus was $677 million less positive in the second quarter of 2015 relative to a year ago.

Figures 17a & 17b

F=Forecast Source(s): U.S. Bureau of the Census and MAPI Foundation

F=Forecast
Source(s): U.S. Bureau of the Census and MAPI Foundation

Material handling equipment new orders (Figures 17a and 17b)

  • Material handling equipment consists of elevators, escalators, conveyors, overhead traveling cranes, hoists, industrial trucks, tractors, and trailers.
  • In the three months ending June 2015, inflation-adjusted material handling orders were up 4% compared with one year earlier.
  • The construction of buildings where elevators and escalators could be used is growing again. Inflation-adjusted construction of private and public buildings was up 17% in the three months ending June 2015 versus the same period one year ago.
  • Warehousing and storage employment was up 3% in the three months ending July 2015 versus the same period one year earlier.
  • Material handling equipment imports increased 7% while exports fell 2%. The industry’s import to export ratio is 1.3, so the trade deficit turned $152 million more negative in the second quarter of 2015 from one year earlier.

Figures 18a & 18b

F=Forecast Source(s): U.S. Bureau of the Census and MAPI Foundation

F=Forecast
Source(s): U.S. Bureau of the Census and MAPI Foundation

Shipments of electronic computer equipment (Figures 18a and 18b)

  • The MAPI Foundation does not forecast electronic computer equipment shipments.
  • Computer shipments fell 9% in the three months ending July 2015 compared with one year earlier. Electronic computer prices declined 5%.
  • Electronic computer imports fell 3% while exports dropped 9%. With a large import to export ratio of 5.1, the huge trade deficit was $207 million less negative in the second quarter of 2015 compared with one year earlier.

Figures 19a & 19b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Communications equipment production and business activity (Figures 19a and 19b)

  • Communications equipment encompasses telephone apparatus and broadcast and wireless communications equipment. The category also includes alarms, signaling equipment, and safety detectors.
  • Communications equipment is measured by an industrial production index that adjusts activity upward to account for quality features.
  • We predict that communications equipment production will increase 2% in 2015, 8% in 2016, and 6% in 2017.
  • Production fell 3% in the period of May to July 2015 compared with one year ago.
  • Construction spending for communications infrastructure (in current dollars) declined 14% in the three months ending June 2015 versus one year ago.
  • Defense communications are about one-tenth of the communications equipment market; new orders (in current dollars) in this area fell 16% in April to June 2015 from one year ago. Civilian communications equipment orders were unchanged.
  • Employment indicators show that the production of alarms, signaling equipment, and safety detectors declined in the second quarter of 2015 from one year earlier.
  • The communications equipment industry is very dependent on imports from contract manufacturing plants in Asia. With an import to export ratio of 5.3, domestic production accounts for only a small proportion of domestic consumption. Imports fell 1% while exports rose 20% in the second quarter versus one year ago. The very large trade deficit was $956 million less negative in the second quarter of 2015 compared with one year ago.

Figures 20a & 20b

F=Forecast Source(s): Semiconductor Industry Association and MAPI Foundation

F=Forecast
Source(s): Semiconductor Industry Association and MAPI Foundation

Semiconductors (Figures 20a and 20b)

  • World semiconductor revenues are forecast by World Semiconductor Trade Statistics, an association of semiconductor companies, to grow 3% in 2015, 2016, and 2017.
  • Shipments rose 4% in the three months ending June 2015 compared with one year ago and prices fell 1%.
  • Automotive and wireless communications are projected to grow at a stronger pace than the total market; however, consumer and computer markets for semiconductors are predicted to remain almost flat, according to WSTS.
  • With an import to export ratio of 2, the U.S. is a net importer of semiconductors. Imports and exports each rose 1%; the sizable trade deficit was $180 million more negative in the second quarter of 2015 compared with one year earlier.

Figures 21a & 21b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Navigational, measuring, electromedical, and control instruments production (Figures 21a and 21b)

  • Instrument industry production should grow 3% in 2015, 5% in 2016, and 4% in 2017.
  • Instrument production was up 3% in the three months ending July 2015 compared with one year ago.
  • Search and navigation shipments (in current dollars) rose 5% in the three months ending June 2015 compared with one year ago; defense search and navigation shipments gained 3% and nondefense shipments rose 9%.
  • The electromedical industry’s output rose rapidly in the second quarter of 2015 as indicated by 3% growth in employment versus one year ago. An aging population, more medical tests, and the expansion in health insurance coverage are driving this growth. Electromedical apparatus include scopes, defibrillators, EKGs, MRIs, pacemakers, ultrasounds, and many other medical testing instruments. Irradiation apparatus include CT scanners, x-ray machines, and medical radiation therapy machines.
  • Industrial process instruments measure, control, or display industrial process activities such as temperature, pressure, vacuum, and viscosity. In the second quarter of 2015, industry employment fell 2% compared with one year earlier. Overall manufacturing production is growing (year over year) at a moderate pace, there is moderate growth in factory machinery investment, and manufacturing plant construction is exceptionally strong.
  • Instruments for measuring and testing electricity and electrical signals include circuit and continuity testers, volt meters, ohm meters, watt meters, multimeters, and semiconductor test equipment. In the second quarter of 2015, industry employment fell 5% compared with one year earlier.
  • Navigational, measuring, electromedical, and control instruments have an import to export ratio of 1.3. Imports increased 2% while exports fell 4%; the trade deficit was $640 million more negative in the second quarter of 2015 compared with one year earlier.

Figures 22a & 22b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Electric lighting equipment production (Figures 22a and 22b)

  • Electric lighting equipment includes electric lamp bulbs and residential, commercial, and industrial lighting fixtures.
  • Electric lighting equipment production will fall 3% in 2015, rise 3% in 2016, and grow 4% in 2017.
  • Production fell 3% in the three months ending July 2015 compared with one year ago; the quarter-to-quarter momentum was very negative.
  • In related sectors, inflation-adjusted residential construction spending rose 7% in the three months ending June 2015 from year-ago levels while nonresidential construction of buildings was up 17%.
  • At 6.7, electric lighting equipment’s import to export ratio is one of the most adverse in manufacturing. Imports increased 16% while exports rose 6% in the second quarter of 2015 compared with one year earlier. The trade deficit was $449 million more negative than one year ago.

Figures 23a & 23b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Electrical equipment production (Figures 23a and 23b)

  • This sector consists of transformers, motors and generators, switchgear, relays, and industrial controls.
  • Electrical equipment production is forecast to grow 4% in 2015, 3% in 2016, and 2% in 2017.
  • Production was up 3% in the three months ending July 2015 compared with one year ago, with positive momentum.
  • The factory operating rate was 76.2% in July 2015, up from 75.9% one year ago, but below the long-term average of 78.5%.
  • Relay and industrial controls production appears to be growing at a strong pace. Employment in the industry, which has had large productivity gains, was up 1.5% in the second quarter of 2015 relative to one year earlier. Manufacturing construction activity is booming.
  • Electric motors and generators provide power for many machinery and transportation applications, while generators convert motion into electricity for residential, utility, and industrial uses. Second quarter employment in the industry was unchanged.
  • Transformers and power distribution equipment tend to follow electric utility construction, the creation of new communities, and a replacement cycle; housing starts were up 16% in the three months ending July 2015. Electric power construction, however, declined sharply. Nevertheless, employment in the transformer industry was up a little over 1% in the second quarter of 2015 compared with one year earlier.
  • Switchgear and switchboard apparatus production is flat or growing at a slow rate. Industry employment fell 2.7% in the second quarter.
  • Electrical equipment imports were up 2% while exports fell 4%. The industry’s import to export ratio is 1.9, so the strength of imports pushed the trade deficit $298 million more negative in the second quarter of 2015 compared with one year ago.

Figures 24a & 24b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundatio

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundatio

Medical equipment and supplies production (Figures 24a and 24b)

  • This category encompasses surgical and medical instruments, surgical appliances and supplies, and dental laboratories.
  • Medical equipment production is forecast to increase 2% in 2015, 3% in 2016, and 3% in 2017.
  • Production increased 1% in the three months ending July 2015 compared with year-ago levels.
  • Surgical and medical instruments employment was unchanged in the second quarter but surgical appliances and supplies employment increased a very strong 6%.
  • Safety equipment and supplies and the “all other” group that includes lab equipment and hospital furniture, dental equipment and supplies, and vision care goods saw a moderate 2% decline in employment in the second quarter—suggesting little if any production growth.
  • Dental laboratories industry employment had a strong showing, rising 2.6% in the three months ending June 2015.
  • Medical equipment and supplies imports increased 6% while exports were unchanged. With an import to export ratio of 1.2, the strong growth in imports pushed the trade deficit $525 million more negative in the second quarter of 2015 compared with one year earlier.

Figures 25a & 25b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Aerospace products and parts production (Figures 25a and 25b)

  • Aerospace products and parts production should increase 4% in 2015, 7% in 2016, and 7% in 2017.
  • In the three months ending July 2015, production was up 2% compared with one year ago, with negative momentum.
  • Boeing reported 171 net orders for new commercial airplanes in the second quarter of 2015 and delivered 197 (up 9% from a year earlier). Boeing delivered 723 commercial airplanes in 2014 and expects 753 deliveries in 2015, a 4% increase.
  • U.S. airline traffic—measured in revenue passenger miles—rose 3.5% in the three months ending May 2015 versus one year ago.
  • The International Air Transport Association (IATA) says that world passenger traffic will increase 7% in 2015 and world freight traffic should grow 6%.
  • Defense aerospace contracts are very long term and military austerity is baked into short-term production activity. Defense aerospace shipments (in current dollars)—about one-third of the total industry—were up 1% in the three months ending June 2015 versus one year ago. Civilian aircraft and parts shipments rose 19% in this time frame.
  • With an import to export ratio of 0.5, aerospace is the largest net exporter in U.S. manufacturing. Imports increased 4% while exports grew 5% in the second quarter of 2015, and the trade surplus was $793 million more positive relative to one year earlier.

Figures 26a & 26b

F=Forecast Source(s): Federal Reserve Board and MAPI Foundation

F=Forecast
Source(s): Federal Reserve Board and MAPI Foundation

Oil and gas well drilling production (Figures 26a and 26b)

  • The MAPI Foundation does not forecast drilling production; however, it is clear that drilling activity will decline substantially this year as a result of the recent collapse in oil prices.
  • Drilling activity declined 53% in the three months ending July 2015 relative to one year ago and has sizable negative momentum.
  • Brent oil plummeted from $113 in June 2014 to $48 per barrel in mid-August 2015. Henry Hub natural gas declined from $4.60 in June 2014 to $2.79 per million cubic feet in mid-August 2015. The EIA predicts that U.S. oil and gas production will increase 7% in 2015 and fall 4% in 2016.
  • Natural gas production is forecast to increase 5% this year and 2% next year. U.S. hydrocarbon production is the major reason for lower prices.
  • On the global market, Iran is ramping up production in anticipation of selling oil again and the Saudis are increasing production.
  • Baker Hughes reported that the North American rig count fell 54% in August 2015 versus the same month one year ago.
  • 76% of operating U.S. rigs looked for oil in late August. The U.S. rig count for oil drilling was down 58% in August 2015 versus the same four-week period one year ago. The U.S. rig count for natural gas drilling was down 34% in the same period.

Figures 27a & 27b

F=Forecast Source(s): U.S. Bureau of the Census and MAPI Foundation

F=Forecast
Source(s): U.S. Bureau of the Census and MAPI Foundation

Private nonresidential construction put-in-place (Figures 27a and 27b)

  • We predict that inflation-adjusted nonresidential spending will increase 11% in 2015, 7% in 2016, and 4% in 2017.
  • Nonresidential construction was up 11% in the three months ending June 2015 versus year-ago levels.
  • There was very strong construction growth in lodging (hotels), office buildings, commercial, transportation, manufacturing plants, amusement and recreation, communications and medical structures in the three months ending June 2015. The industry experienced small declines in activity in private education construction and large declines in electric utility construction.
  • Construction spending for factories, adjusted for inflation, rose 61% during April to June 2015 from one year ago. The strongest growth was in chemicals, transportation equipment, nonmetallic minerals, and plastics and rubber. Computers and electronics and fabricated metal products posted large declines. We forecast that industrial construction will grow 52% in 2015, rise 2% in 2016, and decline 11% in 2017.
  • Private electric power construction is falling at a fast pace because of overcapacity and greenhouse gas emissions regulations.
  • The architectural and engineering firm billing index—a leading indicator—cycled around the 50% no-growth level from January to April 2015 and then broke out into growth territory in May, June, and July. The July index level was 54.7, indicating good growth. The improvement is confirmed by robust architectural and engineering employment growth, up 4% in the three months ending July 2015 versus one year ago.

Figures 28a & 28b

F=Forecast Source(s): U.S. Bureau of the Census and MAPI Foundation

F=Forecast
Source(s): U.S. Bureau of the Census and MAPI Foundation

Public construction put-in-place (Figures 28a and 28b)

  • Construction spending by federal, state, and local governments is primarily directed toward schools, highways, sewers, dams, waterworks, and various public buildings.
  • Inflation-adjusted public construction spending should be up 3% in 2015, 3% in 2016, and 1% in 2017.
  • Public works construction was up 5% in the three months ending June 2015 compared with the same period one year ago and the quarter-to-quarter momentum was very positive.
  • Areas of strong growth in the last three months were amusement and recreation, sewerage and waste disposal, and conservation and development.
  • Recent large declines in public construction were in healthcare, public safety, and power.
  • State and local government receipts from taxes and federal transfers will be up 4% in 2015 and 5% in 2016 and 2017. A modest pace of economic expansion will generate higher personal tax receipts and property and sales taxes. Federal grants-in-aid for Medicaid get a large boost from the Affordable Care Act and an aging population.
Kristin Graybill