U.S. Industrial Outlook: Manufacturing Production Growth Is Disappointingly Slow

Summary of Findings and Forecasts
Manufacturing industrial production was unchanged from the third to the fourth quarter of 2015. On a month-to-month basis, the pattern of growth is very erratic. Over the last nine months, manufacturing has followed a pattern of declining for two months and then posting one strong month; a surge in motor vehicle production typically leads the rebound.

This cadence of decline, decline, growth repeated in January 2016. The month-to-month change in manufacturing production fell 0.2% in both November and December and then surged 0.5% in January (largely due to a 2.8% increase in motor vehicles and parts production).

A number of shocks concentrated in manufacturing have not yet dissipated:

  • Inventories are too high; the inventory-to-sales ratio is exceptionally high at both manufacturers and wholesalers. To pare inventories, firms have to reduce production relative to sales. In a slow-growth environment, production takes the brunt of the adjustment.
  • Oil prices continue collapsing in the first quarter of 2016 to unanticipated lows, and market conditions are such that prices could go even lower. While cheap energy prices are a windfall for households, consumers tend to use the extra cash to buy services rather than goods; the goods they do buy tend to be imported rather than domestically made. The decline in energy investment spending directly affects manufacturing.
  • Disappointing profits, the stock market decline, and risk aversion all aggravate the unwillingness to invest.
  • The continuing appreciation of the dollar makes imports cheaper and exports more expensive to foreign buyers. Foreign trade will be a drag on manufacturing growth for several more years.

We expect the volatility to continue through the first half of 2016, a situation that will result in essentially no manufacturing production growth. Manufacturing production should be flat in the first and second quarters of 2016 before accelerating to a 3% annual rate in the second half of 2016.

Continued strong employment growth is the growth driver for the outlook; it creates new income growth and a solid base of consumer spending. Another impetus is easy credit availability, which propels big-ticket spending for motor vehicles, residential housing, and nonresidential construction.

We are lowering the forecast for this year and next because of the persistence of the shocks to manufacturing demand. We now see more downside than upside risks. Manufacturing production will decelerate rather than accelerate this year. Production increased 2% last year and we forecast only 1.1% growth in 2016. We forecast 2.4% growth in 2017 and a 2.5% increase in 2018.

High-tech production (computer and electronic products) posted 1.7% growth in 2015. We expect a slight rebound in tech production to 2.3% growth in 2016, 3.1% in 2017, and 5.3% in 2018.

Manufacturing Recovery
Manufacturing is still in the recovery phase of the economic cycle. Manufacturing industrial production must grow another 3% in order to reach the pre-recession production level achieved in the fourth quarter of 2007—that means full recovery is expected in the third quarter of 2017. Non-high-tech manufacturing production is 5% below the prerecession level and will not be fully recovered until the third quarter of 2018.

Table 1 – MAPI Foundation Forecast for Manufacturing Production

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Summary of Findings
Among the highlights of this quarterly 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 very rapid pace in the next three years because they are at a low level relative to the pace of expected household formations. The 2016-2018 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, etc.) will continue to ramp up for three more years.
  • Motor vehicles and parts production benefits from low gas prices that encourage the purchase of large, expensive vehicles; this favors the domestic industry. Motor vehicle sales are at record levels and the industry’s growth streak will continue through 2017.
  • Private commercial and non-industrial construction will post relatively strong growth rates during 2016-2018. Industrial construction, though, should peak this year at an exceptionally high level and then decline sharply in 2017 and 2018. A surge in new transportation and chemical plants is ending. Public utility construction will grow at a moderate rate this year and then decline in 2017 and 2018. Mining and drilling construction will plummet again in 2016 and then post a strong percentage growth rate in 2017 and 2018 as the industry stabilizes at a lower level of exploration.
  • Medical care is a growth business. An aging population and the ACA will drive demand. Pharmaceutical production is growing again in the United States owing to new blockbuster patent-protected products. Medical equipment and supplies production is constrained by the consolidation of hospitals, insurance companies, and physician practices.
  • Mining and drilling equipment production should fall 18% and construction equipment production should decline 7% in 2016. The consensus view is that commodity prices will bottom out this year and will rise high enough to encourage production growth but remain well below previous peak levels. If so, mining and drilling equipment will see a strong percentage rebound.
  • Total machinery production will decline 2% in 2016 and then post growth of 2% in 2017 and 4% in 2018. Agricultural, construction, and drilling equipment will post major declines and drag down the total machinery category in 2016. Engines and turbines will fall at a moderate pace next year and industrial machinery production will be flat. These industries will start recovering in 2017. Commercial and service industry machinery and HVAC equipment should consistently post moderate growth over the next three years.
  • A slow pace of manufacturing growth, the strong dollar, excess capacity in China’s manufacturing sector, and low commodity prices will significantly hurt the metals industries. Steel, alumina and aluminum, and fabricated metal products production should decline in 2016.
  • In the basic chemicals industry, our competitive advantage in low natural gas prices—a feedstock for many chemicals—has attracted significant domestic and foreign investment in new facilities.
  • The production ramp-up in the aerospace industry has been disappointingly slow. Since most airplane deliveries are to foreign buyers, the decline in commodity prices, slowdown in China, and strong dollar have hurt deliveries, despite huge backlogs.

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 2018. 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, February 2016

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.

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)

  • The forecast is for housing start gains of 10% to 1,218,000 units in 2016, 16% to 1,412,000 units in 2017, and 6% to 1,495,000 units in 2018.
  • The Case-Shiller housing price index was up only 1% in the three months ending in December compared with the previous three months and was 5% above the previous year.
  • Home sales are encouraging. In the three months ending January 2016, new home sales were 5% above year-ago levels but up 30% at an annual rate from the previous three months.
  • The inventory of new homes was 5.8 months of supply in January 2016, indicating adequate supply, since it was up from 4.8 months in January 2015.
  • On December 16, 2015, the Federal Reserve decided to raise the target range for the federal funds rate to ¼% to ½%. The upward move in the very short-term interest rate does not seem to be having an adverse effect on mortgage rates. In mid-February, mortgage rates were 3.7%, a little below the 3.8% one year ago.
  • In the end of the fourth quarter of 2015, the combined percentage of all mortgage loans in foreclosure or delinquent was 6.5%; the rate is down to third quarter 2006 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 forecast to grow 6% in 2016 and 2017 and then fall 1% in 2018. Auto and light truck sales are forecast to be 17.6 million units in 2016 and 18.1 million units in both 2017 and 2018.
  • Overall production was up 5% in the three months ending January 2016 compared with the same period one year ago. Production fell 6% for automobiles but was up 7% for light trucks and utility vehicles. Auto parts production increased 6% over year-ago levels.
  • Heavy-duty truck production increased 3% in the three months ending January 2016 over the same period one year ago; truck trailer production rose 3%.
  • Heavy-duty truck production should decline 3% in 2016 and fall 2% in both 2017 and 2018.
  • The production of campers and travel trailers rose 9% in the three months ending January 2016 over the same period one year earlier; big-ticket motor home production rose 11%.
  • Motor vehicles and parts imports were up 5% while exports fell 5%. The industry’s import to export ratio is 2.6, so the sizable trade deficit was $5.4 billion more negative in the fourth 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)

  • Household appliance production should grow 3% in 2016, 5% in 2017, and 2% in 2018.
  • Production grew 1% in the three months ending January 2016 compared with the same period one year ago; production of small appliances was up 10% but large appliances fell 1% (the production value of major appliances is three times as large as that of small appliances). The momentum indicator, relating production from November 2015 to January 2016 to that of the previous three months, shows production fell at an 11% annual rate.
  • Existing home sales rose 5% in the three months ending in January 2016 from one year earlier. Both new and existing housing activity is growing versus one year ago.
  • Household appliances’ import to export ratio is 6.2—one of the highest adverse trade ratios in manufacturing. Household appliance imports increased 5% and exports fell 5%, and thus the trade deficit was $376 million more negative in the fourth 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 will increase 1% in 2016 and 3% in both 2017 and 2018.
  • Production was unchanged in the three months ending January 2016 compared with the same period one year ago and the recent quarter-to-quarter momentum rose at a 1% 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 forecasts that the increased number and quality of new drugs for cancer, hepatitis C, autoimmune disorders, heart disease, and rare diseases will transform treatments in 2020. During the next five years, 75 new orphan drugs are expected for diseases that are currently untreatable. There are also reports of generic manufacturers moving to the United States to be closer to the largest market for drugs.
  • Employment in pharmaceuticals and medicine was up 1% in the fourth quarter of 2015 compared with the same period one year earlier. There was a 1% gain in both pharmaceuticals and in miscellaneous medicinal and biologicals employment.
  • Pharmaceutical imports rose 17% while exports expanded 7%. The import to export ratio is 2.0, so the already large trade deficit was $3.3 billion more negative in the fourth 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)

  • The steel industry is predicted to decline 10% in 2016, fall 2% in 2017, and be flat in 2018.
  • Output fell 13% in the three months ending January 2016 versus the same period one year ago. Compared with August to October, the production momentum fell at an 18% annual rate.
  • Capacity utilization in the U.S. steel industry was 73% in the week of February 20, 2016 (about the same as 72% one year earlier). The steel industry has a much lower factory utilization rate than overall manufacturing.
  • U.S. durable goods manufacturing industries’ production momentum declined 1.7% during November 2015 to January 2016 compared with August to October; these are predominantly steel-intensive industries.
  • The large difference between demand and supply suggests that falling steel prices and excess inventory explain the larger decline in steel production.
  • World steel production fell 6% in the three months ending in January compared with one year ago. Steel production was down 8% in Europe (28 countries), was off 6% in Russia, and fell 1% in Korea in the three months ending January 2016 compared with year-ago levels. China’s steel production was down 5% and Taiwan’s was down 21%. Steel production in Brazil fell 10%.
  • Steel product imports fell 44% while exports fell 30%. Steel’s import to export ratio is 2.3, so the trade deficit was $3.9 billion less negative in the fourth quarter of 2015 compared with one year ago. A 19% decline in steel mill product prices accounts for a large portion of the decline in dollar trade in steel.

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 is expected to decline 4% in 2016, fall 1% in 2017, and increase 2% in 2018.
  • Production increased 2% in the three months ending January 2016 compared with the same period one year ago and the quarter-to-quarter momentum was very positive. Primary aluminum production fell 17% from year-ago levels. Fortunately, production of aluminum sheet, plate, and foil and extruded products, which accounts for 89% of the industry, is up 4% in the last three months from a year ago.
  • Production in aluminum-using industries was positive: truck trailer production rose 3% and light truck and utility vehicle production rose 7%, but aerospace production was flat from November 2015 to January 2016 compared with year-ago levels.
  • The Metals Service Center Institute reported that aluminum product shipments from U.S. metals services centers fell 6% in January 2016 versus the same month one year ago.
  • Alumina and aluminum production and processing imports fell 20% while exports fell 10%. Alumina and aluminum’s import to export ratio is 1.6, so the trade deficit was $489 million less negative in the fourth quarter of 2015 compared with one year earlier. A 13% decline in aluminum mill shape prices accounts for a large portion of the decline in dollar trade.

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 is forecast to decline 1% in 2016. We expect 1% production growth in 2017 and 2% growth in 2018.
  • Production fell 2% in the three months ending January 2016 relative to the same period one year ago and the quarter-to-quarter momentum was negative 1%.
  • The subindustries within fabricated metal products saw mixed production activity relative to one year ago. Forging and stamping was up 1%, architectural and structural metals rose 2%, and coating, engraving, and heat treating rose 2% in the three months ending January 2016 relative to the same period one year ago. Machine shop turned products and fasteners fell 7%, however.
  • Fabricated metal products imports dropped 1% and exports fell 4%. Fabricated metal products’ import to export ratio is 1.5, so the trade deficit was $407 million more negative in the fourth 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 post 3% production gains in both 2016 and 2017 and expand 5% in 2018.
  • Overall production was up 6% in the three months ending January 2016 compared with the same period one year ago and the quarter-to-quarter momentum was a positive 11%.
  • Petrochemical and other organic chemicals production was up 6% in the three months ending January 2016 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 5% in the three months ending January 2016 compared with the same period one year ago. There was growth in dyes and pigment and industrial gases. Alkalies and chlorine production declined.
  • A report from U.S. freight railroads indicates that chemical car loadings were up 1% in the first seven weeks of 2016 versus year-ago levels.
  • Basic chemicals imports were down 23% while exports declined 16%. The import to export ratio is 0.8, so the trade surplus grew $826 million more positive in the fourth 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 fall 1% in 2016 and then be unchanged in 2017 and 2018.
  • Production fell 3% in the three months ending January 2016 compared with the same period one year ago. A more short-term (quarter-to-quarter) analysis reveals negative 3% production momentum.
  • In a related end market, industrial production of food products was up 2% in the three months ending January 2016 compared with year-ago levels.
  • A report from the American Trucking Association indicated that truck tonnage was unchanged in January 2016 from one year ago.
  • Paper imports fell 5% while exports declined 4%. Since the import to export ratio is 0.9 in the paper industry, the trade surplus was a small $44 million more positive in the fourth 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)

  • We forecast that construction machinery production will post a 7% decline in 2016 before growth of 1% in 2017 and 6% in 2018.
  • Production fell 13% during November 2015 to January 2016 versus the same period one year earlier. The quarter-to-quarter momentum was even more strongly negative.
  • Private nonresidential construction activity expanded 12% and public works construction grew 3% in the three months ending December 2015 compared with the same period one year ago.
  • Logging production dropped 3% from November 2015 to January 2016 versus one year ago.
  • Mining and quarrying production fell 12% in the three months ending January 2016 compared with the same period one year ago. There was growth in precious metals mining but a huge decline in coal mining.
  • Construction equipment’s import to export ratio was 1.5 in the three months ending December 2015. Imports fell 28% and exports declined 19%; the trade deficit became $21 million less negative in the fourth quarter of 2015.
  • Caterpillar reports that their worldwide machine deliveries to users for retail sales, adjusted for inflation, were down 15% in the three months ending January 2016 versus the same period one year earlier. Construction industries’ sales were down 7% and resources industries’ equipment fell 35%.

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 should fall 18% in 2016 and then grow 5% in 2017 and 15% in 2018.
  • Production fell 28% in the three months ending January 2016 compared with one year earlier and the quarter-to-quarter momentum was very negative.
  • WTI oil prices were $31 in late February, down from $60 in mid-June. A price of $50 is thought to be the approximate breakeven point for new shale oil drilling, so U.S. oil production is starting to decline. The Energy Information Administration (EIA) forecasts an 8% decline in U.S. crude oil production this year.
  • The EIA says coal production is forecast to decline 6% in 2016.
  • Gold and silver mining in the United States increased 7% in the three months ending January 2016 compared with the same period one year earlier.
  • Oil and gas well drilling fell 60% in the three months ending January 2016 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 26% while exports fell 42%; the trade surplus was $1.0 billion less positive in the fourth 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

ndustrial 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 be unchanged in 2016, rise 2% in 2017, and rise 5% in 2018.
  • Production increased 4% in the three months ending January 2016 compared with the same period one year earlier but the momentum indicator was very negative.
  • In related sectors, wood products production rose 2%, paper production fell 3%, textile mill production rose 1%, food production increased 2%, and plastic products production expanded 1% from November 2015 to January 2016 compared with the previous year.
  • The Semiconductor Equipment Association reported that equipment bookings in the three months ending January 2016 were unchanged relative to the same period one year earlier.
  • Construction of new manufacturing plants increased 26% (in inflation-adjusted dollars) in the three months ending December 2015 from one year earlier.
  • Industrial machinery imports were up 13% while exports fell 12% in the fourth quarter of 2015 compared with one year earlier. The industrial machinery industry is export-oriented, with a 0.9 import to export ratio. The trade surplus fell $865 million in the fourth 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)

  • The HVAC production forecast is for growth of 3% in 2016, 4% in 2017, and 3% in 2018.
  • Production fell 3% in the period of November 2015 to January 2016 on a year-over-year basis and the quarter-to-quarter momentum was very negative.
  • In related sectors, construction spending for home improvement was up 9% and inflation-adjusted private nonresidential construction rose 12% in the three months ending December 2015 versus one year earlier.
  • Construction related to refrigeration is declining. Inflation-adjusted food and beverage manufacturing construction fell 22% and inflation-adjusted food and beverage store construction declined 17% in the three months ending December 2015 versus one year ago.
  • HVAC has an import to export ratio of 1.5. Imports fell 4% while exports declined 3% and thus the trade deficit was $43 million less negative in the fourth 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).
  • Metalworking machinery production will increase 1% in 2016 and rise 2% in both 2017 and 2018.
  • Production fell 5% in the three months ending January 2016 over year-ago levels and the quarter-to-quarter momentum was negative 4%.
  • The U.S. Census Bureau reported that metalworking machinery orders (in dollars) grew 23% in the three months ending December 2015 on a year-over-year basis.
  • Metalworking machinery imports fell 10% and exports declined 5% in the fourth quarter of 2015 compared with one year earlier. The import to export ratio is 2.6, so the trade deficit was $393 million less negative in the fourth quarter of this year versus one year earlier.

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.
  • Our forecast for engine, turbine, and power transmission equipment production is a 4% decline in 2016, then growth of 1% in 2017 and 4% in 2018.
  • Production fell 8% in the three months ending January 2016 compared with the same period one year earlier and the quarter-to-quarter momentum was even more negative.
  • Heavy-duty truck production was up 3% but the production of ships and boats fell 1% in the three months ending January 2016 over year-ago levels. The decline in marine construction, however, is not confirmed by employment in the industries—shipbuilding/repairing employment grew 1% and boatbuilding employment gained 3% in the three months ending December 2015 compared with one year earlier. Ship and boat production is predicted to increase 2% this year and to decline 4% in 2017 and 2018.
  • Excess capacity, tough greenhouse gas emission regulations, and regulatory preference for renewable energy restrain investment. Private electric power construction spending fell 1% in the three months ending December 2015 versus the same period one year ago.
  • Turbines compress gas in pipelines and power oil and gas well drilling. Pipeline and storage construction increased 28% in the three months ending December 2015 versus the same period one year earlier. Oil and gas well drilling in the United States, however, fell 60% in the three months ending in January 2016.
  • The American Wind Energy Association reported that during the fourth quarter of 2015, 5,001 megawatts of wind turbines were installed—a huge gain from the 3,600 megawatts installed one year earlier. A wind tax credit was available for projects that started in 2013; as a result, 9,400 megawatts are under construction. The 2.3-cent production tax credit (PTC) for wind was extended by Congress through next year. Projects that begin construction in 2017 will see a 20% reduction in the incentive each year through 2020.
  • Engine, turbine, and power transmission equipment imports declined 8% but exports fell 22%. The industry has a 0.9 import to export ratio and thus the trade surplus was $1.2 billion less positive in the fourth quarter of 2015 relative to a year ago.

Figures 17a & 17b

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

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 December 2015, inflation-adjusted material handling orders were up 15% 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 10% in the three months ending December 2015 versus the same period one year earlier.
  • Warehousing and storage employment was up 8% in the three months ending January 2016 versus the same period one year ago.
  • Material handling equipment imports increased 4% while exports fell 6%. The industry’s import to export ratio is 1.3, so the trade deficit turned $135 million more negative in the fourth quarter of 2015 from one year earlier.

Figures 18a & 18b

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

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 rose 9% in the three months ending December 2015 compared with one year earlier. Electronic computer prices declined 4%.
  • Electronic computer imports fell 6% while exports dropped 5%. With a large import to export ratio of 5.4, the huge trade deficit was $1.4 billion less negative in the fourth 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.
  • Communications equipment production should decline 1% in 2016, rise 4% in 2017, and rise 7% in 2018.
  • Production fell 1% in the period of November 2015 to January 2016 compared with one year ago.
  • Construction spending for communications infrastructure (in current dollars) rose 31% in the three months ending December 2015 versus one year earlier.
  • Defense communications are about one-tenth of the communications equipment market; new orders (in current dollars) in this area fell 4% in October to December 2015 from one year earlier. Civilian communications equipment orders also declined 4%.
  • Employment indicators show that the production of alarms, signaling equipment, and safety detectors declined 4% in the fourth 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 7.1, domestic production accounts for only a small proportion of domestic consumption. Imports rose 1% while exports increased 2% in the fourth quarter versus one year ago. The very large trade deficit was $202 million less negative in the fourth quarter of 2015 compared with one year ago.

Figures 20a & 20b

Source(s): Semiconductor Industry Association and MAPI Foundation

Source(s): Semiconductor Industry Association and MAPI Foundation

Semiconductors (Figures 20a and 20b)

  • World semiconductor revenues are calculated by World Semiconductor Trade Statistics, an association of semiconductor companies. WSTS predicts no growth in 2016 and 3% growth in 2017.
  • Shipments fell 4% in the three months ending December 2015 compared with one year earlier and prices fell 3%.
  • Optoelectronics and sensors are the growth products in the semiconductor industry, according to WSTS. Discrete semiconductors are predicted to decline.
  • With an import to export ratio of 2.0, the U.S. is a net importer of semiconductors. Imports fell 5% and exports fell 4% in the fourth quarter of 2015; the sizable trade deficit was $627 million less negative than 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 is expected to grow 2% in 2016, 3% in 2017, and 2% in 2018.
  • Instrument production was up 1% in the three months ending January 2016 compared with one year ago.
  • Search and navigation shipments (in current dollars) rose 6% in the three months ending December 2015 compared with one year ago; defense search and navigation shipments gained 6% and nondefense shipments rose 8%.
  • The electromedical industry’s output rose in the fourth quarter of 2015 as indicated by 3% growth in employment versus one year earlier. 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 fourth quarter of 2015, industry employment was flat compared with one year earlier. Overall manufacturing production is growing at a modest pace year over year and there is a mixed picture in factory machinery investment. Manufacturing plant construction, though, 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 fourth quarter of 2015, industry employment was unchanged compared with one year earlier.
  • Navigational, measuring, electromedical, and control instruments have an import to export ratio of 1.3. Imports declined 2% while exports fell 4%; the trade deficit was $199 million more negative in the fourth 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 should be up 2% in 2016, 2% in 2017, and 6% in 2018.
  • Production fell 2% in the three months ending January 2016 compared with one year ago but the quarter-to-quarter momentum was positive.
  • In related sectors, inflation-adjusted residential construction spending rose 8% in the three months ending December 2015 from year-ago levels while nonresidential construction of buildings was up 10%.
  • At 6.9, electric lighting equipment’s import to export ratio is one of the most adverse in manufacturing. Imports increased 5% while exports fell 9% in the fourth quarter of 2015 compared with one year earlier. The trade deficit was $203 million more negative than one year earlier.

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.
  • The forecast calls for electrical equipment production growth of 5% in 2016, 1% in 2017, and 3% in 2018.
  • Production was up 8% in the three months ending January 2016 compared with one year ago, with positive momentum.
  • The factory operating rate was 76.1% in January 2016, up from 74.9% one year ago, but below the long-term average of 78.5%.
  • Relay and industrial controls production appears to be growing at a moderate pace. Employment in the industry, which has had large productivity gains, was down 1.8% in the fourth quarter of 2015 relative to one year earlier. Manufacturing construction activity is growing rapidly.
  • Electric motors and generators provide power for many machinery and transportation applications, while generators convert motion into electricity for residential, utility, and industrial uses. Fourth 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 8% in the three months ending January 2016. Electric power construction, however, is flat. Nevertheless, employment in the transformer industry was up a strong 3% in the fourth quarter of 2015 compared with one year earlier.
  • Switchgear and switchboard apparatus production is likely posting some growth. Industry employment was unchanged in the fourth quarter.
  • Electrical equipment imports were up 3% while exports fell 12%. The industry’s import to export ratio is 2.0, so the weakness of exports pushed the trade deficit $677 million more negative in the fourth quarter of 2015 compared with one year ago.

Figures 24a & 24b

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

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

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

  • This category encompasses surgical and medical instruments, surgical appliances and supplies, and dental laboratories.
  • We forecast medical equipment production growth of 4% in 2016 and 2% in 2017 and 2018.
  • Production increased 1% in the three months ending January 2016 compared with year-ago levels.
  • Surgical and medical instruments employment increased 3% in the fourth quarter but surgical appliances and supplies employment was flat.
  • 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 4% growth in employment in the fourth quarter. This suggests a burst of production growth.
  • Dental laboratories industry employment had a very strong showing, rising 8% in the three months ending December 2015.
  • Medical equipment and supplies imports increased 5% while exports were unchanged. With an import to export ratio of 1.3, the strong growth in imports pushed the trade deficit $396 million more negative in the fourth 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 will be unchanged in 2016 before growing 3% in 2017 and 5% in 2018.
  • In the three months ending January 2016, production was unchanged compared with one year ago, with zero momentum.
  • Boeing reported 321 net orders for new commercial airplanes in the fourth quarter of 2015 and delivered 182 (down 7% from a year earlier). Boeing delivered 762 commercial airplanes in 2015 (up 5% from 2014) and expects 743 deliveries in 2016, a 2% reduction.
  • U.S. airline traffic—measured in revenue passenger miles—rose 6% in the three months ending November 2015 versus one year earlier.
  • Defense aerospace contracts are very long term and military austerity likely longer term. Defense aerospace shipments (in current dollars)—about one-third of the total industry—were up 4% in the three months ending December 2015 versus one year earlier. Civilian aircraft and parts shipments also rose 4% 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 6% while exports were up 3% in the fourth quarter of 2015. Because exports are so large relative to imports, the trade surplus was $295 million more positive relative to one year earlier.

Figures 26a & 26b

Source(s): Federal Reserve Board and MAPI Foundation

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.
  • Drilling activity declined 60% in the three months ending January 2016 relative to one year ago and has sizable negative momentum.
  • Brent oil plummeted from $42 per barrel in late November 2015 to $34 in late February 2016. Henry Hub natural gas declined from $2.09 per million cubic feet in late November 2015 to $1.78 in late February 2016. The EIA predicts that U.S. crude oil production will decline 8% in 2016 and 3% in 2017.
  • Natural gas production is forecast to increase 1% in 2016 and 2% next year. U.S. hydrocarbon production growth, sluggish U.S. economic growth, and normal winter weather are the major reasons for lower prices.
  • EIA expects non-OPEC oil production to decline in 2016 and 2017, which would be the first annual decline in non-OPEC production since 2008. Most of the decline in production is coming from the United States.
  • Baker Hughes reports that 81% of operating U.S. rigs looked for oil in February. The U.S. rig count for oil drilling was down 59% in February 2016 versus the same four-week period one year ago. The U.S. rig count for natural gas drilling was down 65% 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)

  • Inflation-adjusted nonresidential spending should increase 5% in 2016, be unchanged in 2017, and post 1% growth in 2018.
  • Nonresidential construction was up 12% in the three months ending December 2015 versus year-ago levels.
  • There was very strong construction growth in lodging (hotels), office buildings, private education, amusement and recreation, communications, oil and gas pipelines and storage, and manufacturing plants in the three months ending December 2015. Modest growth occurred in healthcare, religious, and transportation. There were small declines in commercial and electric utility construction.
  • Construction spending for factories, adjusted for inflation, rose 26% during October to December 2015 from one year earlier. The strongest growth was in chemicals, transportation equipment, nonmetallic minerals, fabricated metal products, and rubber and plastics. Computers and electronics and food manufacturing posted large declines. Industrial construction grew 53% in 2015. We forecast industrial construction spending to decline 1% in 2016, 13% in 2017, and 7% in 2018.
  • Private electric power construction is falling because of overcapacity and potential greenhouse gas emissions regulations.
  • The architectural and engineering firm billing index—a leading indicator—signaled a decline in activity for January 2016, the first such signal since August 2015. Severe weather events in January may account for the shortfall. A lagging indicator finds growth. Architectural and engineering employment is up 2% in the three months ending January 2016 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 is forecast to increase 3% in 2016 and 1% in both 2017 and 2018.
  • Public works construction was up 3% in the three months ending December 2015 compared with the same period one year ago but the quarter-to-quarter momentum was negative.
  • The only area of strong growth in the last three months was education construction. Moderate growth occurred in offices, amusement and recreation, highway and street, and transportation.
  • Recent declines in public construction spending were in healthcare, public safety, power, sewage and waste disposal, water supply, and conservation and development.
  • State and local government receipts from taxes and federal transfers will be up 3% in 2016 and 5% in 2017 and 2018. A modest pace of economic expansion will generate higher personal tax receipts and property and sales taxes.