Quarterly Economic Forecast: Modest to Moderate Growth But No ‘Breakout’ Boom

A number of factors have challenged economic growth in 2015, among them a second straight severe winter, the West Coast port strike, a strong dollar, and collapse of oil prices, but assuming the first two were anomalies, there should be marginal improvement for 2016, according to a new forecast.

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 2.3% in 2015, down from 2.4% in the May 2015 report, and increase to 2.9% in 2016, a slight decline from 3.0% in the previous forecast. GDP growth for 2017 is anticipated to be 2.7%, representing no change from the May forecast.

Manufacturing production is expected to decelerate, with growth of 2.1% in 2015 (a decline from 2.5% in the previous forecast) before rising to 3.4% in 2016, but below the 4.0% predicted in the May report. The forecast of 3.1% growth in 2017 remains unchanged.

"The growth rate is not accelerating," said MAPI Foundation Chief Economist Daniel J. Meckstroth, Ph.D. "The economy has fully recovered, but it has been an abnormally slow expansion after a sluggish recovery. Consumers and businesses are risk-averse, and without the credit hype, spending will have to be commensurate with income growth."

Still, Meckstroth sees some positive signs.

"The good news is that despite slow economic growth, consumer- and investment-driven manufacturing is still growing," he added. "Firms are not making big investments to increase productivity; they are instead hiring more workers to keep up with demand. The household sector has enjoyed the job growth that in turn creates confidence and willingness to spend. Job growth, low unemployment, low inflation, and interest rates are the reasons that spending for housing and autos lead the growth in manufactured goods."
 
Production in non-high-tech manufacturing is expected to increase 2.3% in 2015, 3.3% in 2016, and 2.9% in 2017. High-tech manufacturing production, which accounts for approximately 5% of all manufacturing, is anticipated to grow 1.5% in 2015, 6.1% in 2016, and 5.9% in 2017.

The forecast for inflation-adjusted investment in equipment is for growth of 3.1% in 2015, 7.9% in 2016, and 5.9% in 2017. Capital equipment spending in high-tech sectors will also rise. Inflation-adjusted expenditures for information processing equipment are anticipated to increase by 1.7% in 2015 before improving to 10.2% in 2016, and 9.6% in 2017. The MAPI Foundation expects industrial equipment expenditures to advance 6.1% in 2015, 13.0% in 2016, and 8.5% in 2017. Spending on transportation equipment is forecast to increase 6.8% in 2015 and 1.2% in 2016 but decline by 1.1% in 2017.

Spending on nonresidential structures is anticipated to decrease by 0.9% in 2015 before rebounding to growth of 5.5% in 2016 and 5.4% in 2017. Residential fixed investment is forecast to increase 8.3% in 2015, 9.5% in 2016, and 8.2% in 2017. Meckstroth anticipates 1.1 million housing starts in 2015, 1.3 million in 2016, and 1.4 million in 2017.

A strong dollar continues to cause concerns. Meckstroth expects trade will be a net drag on the U.S. economy over the next few years. Inflation-adjusted exports are anticipated to increase only 1.7% in 2015 and 4.1% in both 2016 and 2017. Meanwhile, inflation-adjusted imports are expected to grow 5.9% in 2015, 6.0% in 2016, and 6.8% in 2017. The MAPI Foundation forecasts overall unemployment to average 5.4% in 2015, and 5.1% in both 2016 and 2017.

The manufacturing sector added 210,000 jobs in 2014. The outlook is for an increase of 124,000 jobs in 2015, a drop from 180,000 anticipated in the May report. Meckstroth envisions 94,000 manufacturing jobs to be added in 2016, a significant increase from 33,000 in the previous forecast. The forecast anticipates growth of 30,000 jobs in 2017.

The refiners’ acquisition cost per barrel of imported crude oil is expected to average $45.60 in 2015, $48.50 in 2016, and $63.10 in 2017.