U.S. Industrial Outlook: Shaking Off the Shocks

Summary of Findings and Forecasts
Manufacturing industrial production grew 0.5% at an annual rate from the fourth quarter of 2015 to the first quarter of 2016. Production in the month of April grew at a 3.8% annual rate, so the second quarter is off to a good start.

On a month-to-month basis, the first four months of the year show a pattern of erratic growth—0.4% in January, 0.0% in February, -0.3% in March, and 0.3% in April. The data show that manufacturing is struggling to stay in positive growth territory.

In the first four months of this year, motor vehicles and parts production clearly led the pack, with support from basic chemicals, nonmetallic mineral products, and medical equipment and supplies. Declines in machinery, fabricated metal products, pharmaceuticals, and aerospace largely offset the positive gains.

The shocks that are concentrated in manufacturing have eased but not yet dissipated:

  • Oil prices rebounded from $33 in early February to $49 at the end of May, but this is not enough to stop the collapse in drilling activity. The energy supply chain is still in full retreat and a few weeks of prices that are near the $50 breakeven point is going to take time to turn exploration activity. While cheap energy prices are a windfall for households, consumers tend to use the extra cash to buy services rather than goods—and the goods they do buy tend to be imported rather than domestically made. The decline in energy investment spending directly affects manufacturing.
  • The dollar appreciated 23% from mid-2014 to January 2016. From this peak, it has retreated 4% through May. While the recent depreciation is welcome, the strong dollar has a long adjustment period. Foreign trade will be a drag on manufacturing growth for several more years.
  • Inventories remain too high; the inventory-to-sales ratio is exceptionally high at both manufacturers and wholesalers. To pare down inventories, firms have to reduce production relative to sales.

We expect the volatility to continue through the second and third quarters of this year, resulting in essentially no manufacturing production growth. It will not be until the fourth quarter that manufacturing is able to start stringing together consistent growth.

We are lowering the forecast for this year because of the persistence of the shocks to manufacturing demand, the lack of progress in cutting excessive inventories, and the downward revision by the Federal Reserve of reported growth over the previous three years. We continue to see more downside than upside risks to the outlook. Manufacturing production increased 0.8% last year and we forecast only 0.4% growth in 2016. We do, however, expect 2.5% growth in 2017 and a 2.8% increase in 2018.

High-tech production (computer and electronic products) posted 2.8% growth in 2015. We expect a small deceleration in tech production to 2.2% growth in 2016, then gains of 4.1% in 2017 and 4.5% in 2018.

Data Revision and the Manufacturing Recovery
On April 1, the Federal Reserve revised its index of industrial production and substantially lowered the growth rate that manufacturing production had increased as previously reported for 2013, 2014, and 2015. The revision incorporates newly available annual data on output that come from the U.S. Census Bureau’s Annual Survey of Manufactures for 2014 and revisions to the 2013 survey. Manufacturing industrial production was revised down from 2.5% in 2014 to 1.3% and from 1.9% in 2015 to 0.8%.

These are large downward revisions that accumulate and substantially delay the timing of the manufacturing sector’s recovery from the 2008-2009 recession. Manufacturing industrial production must grow another 6.3% in order to reach the prerecession production level achieved in the fourth quarter of 2007—that means full recovery is expected in the third quarter of 2018. Non-high-tech manufacturing production must grow another 9.6% to reach the prerecession level and will not be fully recovered until the third quarter of 2020.

Table 1 – MAPI Foundation Forecast for Manufacturing Production

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Summary of Findings
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 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 the low gas prices, strong job growth, and replacement cycle 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 peak next year.
  • Private building construction will post relatively strong growth in 2016 before slowing to a modest pace during 2017-2018. Industrial construction should peak this year at an exceptionally high level and then decline in 2017 and 2018, because the surge in new transportation and chemical plants is ending. Public utility construction will grow a little this year and then decline in 2017 and 2018. Mining and drilling exploration will plummet again in 2016 (falling by more than half) 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 are driving demand. Pharmaceutical production is growing again in the United States, owing to new blockbuster patent-protected products. Medical equipment and supplies production will post strong growth this year and maintain a moderate pace in 2017-2018, even as hospitals, insurance companies, and physician practices consolidate.
  • Mining and drilling equipment production should fall 18% and construction equipment production should decline 8% in 2016. The consensus view is that commodity prices have already bottomed out and will rise high enough to encourage energy and resource exploration investment growth again, but remain well below previous peak levels.
  • Total machinery production will decline 5% in 2016 and then post growth of 3% in 2017 and 2018. Agricultural, construction, mining and drilling equipment, and engines and turbines will post major declines and drag down the total machinery category in 2016. HVAC, metalworking, and industrial machinery will fall at a moderate pace this year and start recovering in 2017. Commercial and service industry machinery equipment should consistently post moderate growth over the next three years.
  • The slow pace of manufacturing growth, 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 basic organic chemicals, 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 other emerging economies, and strong dollar have hurt deliveries, despite huge backlogs.

Table 2 – MAPI Foundation Forecast for Manufacturing 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 industry.

Figure 1 – MAPI Foundation Forecast for Manufacturing Production, April 2016

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Individual Analysis for 27 Industries
Highlights of inflation-adjusted business activity in selected manufacturing, drilling, and construction markets are discussed below.

Figures 2a & 2b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Housing starts (Figures 2a and 2b)

  • The forecast is for housing start gains of 5% to 1,167,000 units in 2016, 17% to 1,371,000 units in 2017, and 9% to 1,491,000 units in 2018.
  • The Case-Shiller housing price index was up 5% in the three months ending in March compared with the previous year.
  • Home sales are encouraging. In the three months ending April 2016, new home sales were 8% above year-ago levels and up 33% at an annual rate from the previous three months.
  • The inventory of new homes was 4.7 months of supply in April 2016, indicating tightening supply, since it is down from 5.0 months in April 2015.
  • On December 16, 2015, the Federal Reserve decided to start raising the target range for the federal funds rate in ¼ percentage point increments. The infrequent upward move in the very short-term interest rate does not seem to be having any adverse effect on mortgage rates. In late May, mortgage rates were 3.6%, a little below the 3.9% one year ago.
  • At the end of the first quarter of 2016, 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

Source(s): MAPI Foundation

Source(s): MAPI Foundation

U.S. Industrial Outlook: Shaking Off the Shocks

Publication Date: 

Monday, June 13, 2016

  • Multiple shocks that are concentrated in manufacturing (inventories, the strong dollar, and low commodity prices) have eased but not yet dissipated
  • We forecast only 0.4% growth in 2016. We do, however, expect 2.5% growth in 2017 and a 2.8% increase in 2018
  • Manufacturing industrial production must grow another 6.3% 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 2018

Summary of Findings and Forecasts
Manufacturing industrial production grew 0.5% at an annual rate from the fourth quarter of 2015 to the first quarter of 2016. Production in the month of April grew at a 3.8% annual rate, so the second quarter is off to a good start.

On a month-to-month basis, the first four months of the year show a pattern of erratic growth—0.4% in January, 0.0% in February, -0.3% in March, and 0.3% in April. The data show that manufacturing is struggling to stay in positive growth territory.

In the first four months of this year, motor vehicles and parts production clearly led the pack, with support from basic chemicals, nonmetallic mineral products, and medical equipment and supplies. Declines in machinery, fabricated metal products, pharmaceuticals, and aerospace largely offset the positive gains.

The shocks that are concentrated in manufacturing have eased but not yet dissipated:

  • Oil prices rebounded from $33 in early February to $49 at the end of May, but this is not enough to stop the collapse in drilling activity. The energy supply chain is still in full retreat and a few weeks of prices that are near the $50 breakeven point is going to take time to turn exploration activity. While cheap energy prices are a windfall for households, consumers tend to use the extra cash to buy services rather than goods—and the goods they do buy tend to be imported rather than domestically made. The decline in energy investment spending directly affects manufacturing.
  • The dollar appreciated 23% from mid-2014 to January 2016. From this peak, it has retreated 4% through May. While the recent depreciation is welcome, the strong dollar has a long adjustment period. Foreign trade will be a drag on manufacturing growth for several more years.
  • Inventories remain too high; the inventory-to-sales ratio is exceptionally high at both manufacturers and wholesalers. To pare down inventories, firms have to reduce production relative to sales.

We expect the volatility to continue through the second and third quarters of this year, resulting in essentially no manufacturing production growth. It will not be until the fourth quarter that manufacturing is able to start stringing together consistent growth.

We are lowering the forecast for this year because of the persistence of the shocks to manufacturing demand, the lack of progress in cutting excessive inventories, and the downward revision by the Federal Reserve of reported growth over the previous three years. We continue to see more downside than upside risks to the outlook. Manufacturing production increased 0.8% last year and we forecast only 0.4% growth in 2016. We do, however, expect 2.5% growth in 2017 and a 2.8% increase in 2018.

High-tech production (computer and electronic products) posted 2.8% growth in 2015. We expect a small deceleration in tech production to 2.2% growth in 2016, then gains of 4.1% in 2017 and 4.5% in 2018.

Data Revision and the Manufacturing Recovery
On April 1, the Federal Reserve revised its index of industrial production and substantially lowered the growth rate that manufacturing production had increased as previously reported for 2013, 2014, and 2015. The revision incorporates newly available annual data on output that come from the U.S. Census Bureau’s Annual Survey of Manufactures for 2014 and revisions to the 2013 survey. Manufacturing industrial production was revised down from 2.5% in 2014 to 1.3% and from 1.9% in 2015 to 0.8%.

These are large downward revisions that accumulate and substantially delay the timing of the manufacturing sector’s recovery from the 2008-2009 recession. Manufacturing industrial production must grow another 6.3% in order to reach the prerecession production level achieved in the fourth quarter of 2007—that means full recovery is expected in the third quarter of 2018. Non-high-tech manufacturing production must grow another 9.6% to reach the prerecession level and will not be fully recovered until the third quarter of 2020.

Table 1 – MAPI Foundation Forecast for Manufacturing Production

 

Source(s): MAPI Foundation

Summary of Findings
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 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 the low gas prices, strong job growth, and replacement cycle 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 peak next year.
  • Private building construction will post relatively strong growth in 2016 before slowing to a modest pace during 2017-2018. Industrial construction should peak this year at an exceptionally high level and then decline in 2017 and 2018, because the surge in new transportation and chemical plants is ending. Public utility construction will grow a little this year and then decline in 2017 and 2018. Mining and drilling exploration will plummet again in 2016 (falling by more than half) 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 are driving demand. Pharmaceutical production is growing again in the United States, owing to new blockbuster patent-protected products. Medical equipment and supplies production will post strong growth this year and maintain a moderate pace in 2017-2018, even as hospitals, insurance companies, and physician practices consolidate.
  • Mining and drilling equipment production should fall 18% and construction equipment production should decline 8% in 2016. The consensus view is that commodity prices have already bottomed out and will rise high enough to encourage energy and resource exploration investment growth again, but remain well below previous peak levels.
  • Total machinery production will decline 5% in 2016 and then post growth of 3% in 2017 and 2018. Agricultural, construction, mining and drilling equipment, and engines and turbines will post major declines and drag down the total machinery category in 2016. HVAC, metalworking, and industrial machinery will fall at a moderate pace this year and start recovering in 2017. Commercial and service industry machinery equipment should consistently post moderate growth over the next three years.
  • The slow pace of manufacturing growth, 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 basic organic chemicals, 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 other emerging economies, and strong dollar have hurt deliveries, despite huge backlogs.

Table 2 – MAPI Foundation Forecast for Manufacturing Production

 

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 industry.

Figure 1 – MAPI Foundation Forecast for Manufacturing Production, April 2016

 

Source(s): MAPI Foundation

Individual Analysis for 27 Industries
Highlights of inflation-adjusted business activity in selected manufacturing, drilling, and construction markets are discussed below.

Figures 2a & 2b

 

Source(s): MAPI Foundation

Housing starts (Figures 2a and 2b)

  • The forecast is for housing start gains of 5% to 1,167,000 units in 2016, 17% to 1,371,000 units in 2017, and 9% to 1,491,000 units in 2018.
  • The Case-Shiller housing price index was up 5% in the three months ending in March compared with the previous year.
  • Home sales are encouraging. In the three months ending April 2016, new home sales were 8% above year-ago levels and up 33% at an annual rate from the previous three months.
  • The inventory of new homes was 4.7 months of supply in April 2016, indicating tightening supply, since it is down from 5.0 months in April 2015.
  • On December 16, 2015, the Federal Reserve decided to start raising the target range for the federal funds rate in ¼ percentage point increments. The infrequent upward move in the very short-term interest rate does not seem to be having any adverse effect on mortgage rates. In late May, mortgage rates were 3.6%, a little below the 3.9% one year ago.
  • At the end of the first quarter of 2016, 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

 

Source(s): MAPI Foundation

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

  • Motor vehicles and parts production should grow 4% in 2016, fall 2% in 2017, and drop 1% in 2018. Auto and light truck sales are forecast to be 17.8 million units in 2016, 18.2 million units in 2017, and 18.1 million units in 2018.
  • Overall production was up 6% in the three months ending April 2016 compared with the same period one year ago. Production was flat for automobiles but was up 10% for light trucks and utility vehicles. Auto parts production increased 7% over year-ago levels.
  • Heavy-duty truck production fell 3% in the three months ending April 2016 over the same period one year ago; truck trailer production dropped 5%.
  • Heavy-duty truck production should decline 8% in 2016 and increase 1% in both 2017 and 2018.
  • The production of campers and travel trailers rose 8% in the three months ending April 2016 over the same period one year earlier; big-ticket motor home production rose 15%.
  • Motor vehicles and parts imports were up 8% while exports rose 2%. For every dollar of exports there were $2.60 of imports, so the sizable trade deficit was $5.0 billion more negative in the first quarter of 2016 compared with one year earlier.

Figures 4a & 4b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Household appliance production (Figures 4a and 4b)

  • Household appliance production should grow 5% in 2016, 3% in 2017, and 2% in 2018.
  • Production grew 4% in the three months ending April 2016 compared with the same period one year ago; production of small appliances was up 17% and large appliances rose 2% (the production value of major appliances is three times as large as that of small appliances). The momentum indicator, relating production from February to April 2016 to that of the previous three months, shows production rose at an 11% annual rate.
  • Existing home sales rose 3% in the three months ending April 2016 from one year earlier. Both new and existing housing activity is growing versus one year ago.
  • Household appliances’ import to export ratio is 6.0—one of the highest adverse trade ratios in manufacturing. Household appliance imports increased 5% and exports fell 8%, and thus the trade deficit was $330 million more negative in the first quarter of 2016 compared with one year ago.

Figures 5a & 5b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • Pharmaceutical and medicine production will increase 1% in 2016, 2% in 2017, and 3% in 2018.
  • Production was off 1% in the three months ending April 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 first quarter of 2016 compared with the same period one year earlier. There was a 1% gain in both pharmaceuticals and miscellaneous medicinal and biologicals employment.
  • Pharmaceutical imports rose 12% while exports fell 3%. For every dollar of exports there were $2.00 of imports, so the already large trade deficit was $3.5 billion more negative in the first quarter of 2016 compared with one year earlier.

Figures 6a & 6b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • The steel industry is predicted to decline 3% in 2016, 2% in 2017, and 3% in 2018.
  • Output rose 1% in the three months ending April 2016 versus the same period one year ago. Compared with November to January, the production momentum expanded at a 30% annual rate.
  • Capacity utilization in the U.S. steel industry was 75.9% in the week of May 28, 2016 (higher than the 72.1% one year earlier).
  • U.S. durable goods manufacturing industries’ production momentum rose 0.5% during February to April 2016 compared with November to January; these are predominantly steel-intensive industries.
  • Steel inventories are being drawn down. In April 2016, U.S. service center steel shipments decreased by 6.3% from April 2015. Steel product inventories decreased 19.3% from April a year ago.
  • Tariffs imposed on imported steel have increased domestic prices.
  • World steel production fell 1% in the three months ending in April compared with one year ago. Steel production was down 6% in Europe (28 countries), was off 2% in Russia, and fell 2% in Korea. In the three months ending April 2016 compared with year-ago levels, China’s steel production was flat and Taiwan’s was down 10%. Steel production in Brazil fell 13%.
  • Steel product imports fell 47% (because of trade tariffs) while exports fell 26%. Steel’s import to export ratio is 2.1, so the trade deficit was $4.4 billion less negative in the first quarter of 2016 compared with one year ago. A 21% decline in steel mill product prices for imports accounts for a large portion of the decline in dollar trade in steel.

Figures 7a & 7b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • Alumina and aluminum production is forecast to decline 4% in 2016, fall 1% in 2017, and increase 2% in 2018.
  • Production fell 6% in the three months ending April 2016 compared with the same period one year ago and the quarter-to-quarter momentum was very negative.
  • Production in aluminum-using industries was mixed: truck trailer production fell 5% but light truck and utility vehicle production rose 10%. Aerospace production was down 2% from February to April 2016 compared with year-ago levels.
  • The Metals Service Center Institute reported that aluminum product shipments from U.S. metals services centers fell 9% in April 2016 versus the same month one year ago.
  • Alumina and aluminum production and processing imports fell 15% while exports fell 11%. Alumina and aluminum’s import to export ratio is 1.9, so the trade deficit was $369 million less negative in the first quarter of 2016 compared with one year earlier. A 16% decline in alumina and aluminum production prices for imports accounts for a large portion of the decline in dollar trade.

Figures 8a & 8b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • Fabricated metals production should decline 2% in 2016. We expect production growth of 1% in 2017 and 2% in 2018.
  • Production fell 3% in the three months ending April 2016 relative to the same period one year ago and the quarter-to-quarter momentum was negative 4%.
  • Production in most subindustries within fabricated metal products declined relative to one year ago. Forging and stamping was down 2%, architectural and structural metals fell 2%, and machine shop turned products and fasteners fell 7% in the three months ending April 2016 relative to the same period one year ago. Coating, engraving, and heat treating rose 1%, however.
  • Fabricated metal products imports dropped 5% and exports fell 5%. For every $1 of fabricated metal products exports there were $1.50 in imports, so the trade deficit was $178 million less negative in the first quarter of 2016 compared with one year earlier.

Figures 9a & 9b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Basic chemicals production (Figures 9a and 9b)

  • Basic chemicals production should post growth of 4% in 2016, 3% in 2017, and 5% in 2018.
  • Overall production was up 3% in the three months ending April 2016 compared with the same period one year ago and the quarter-to-quarter momentum was a positive 1%.
  • Petrochemical and other organic chemicals production was up 4% in the three months ending April 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 was flat in the three months ending April 2016 compared with the same period one year ago.
  • A report from U.S. freight railroads indicates that chemical car loadings were up 4% in May 2016 versus year-ago levels.
  • Basic chemicals imports were down 9% while exports declined 10%. The import to export ratio is 0.9, so the trade surplus became $280 million less positive in the first quarter of 2016 relative to one year earlier.

Figures 10a & 10b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Paper production (Figures 10a and 10b)

  • Paper production should fall 2% in 2016, drop 1% in 2017, and then be unchanged in 2018.
  • Production fell 2% in the three months ending April 2016 compared with the same period one year ago. A more short-term (quarter-to-quarter) analysis reveals no production growth momentum.
  • In a related end market, industrial production of food products expanded 1% in the three months ending April 2016 compared with year-ago levels.
  • A report from the American Trucking Association indicated that truck tonnage grew 2% in April 2016 from one year ago.
  • Paper imports fell 4% while exports declined 4%. Since the paper industry’s import to export ratio is 0.9 (for each dollar of exports there are 90 cents of imports), the trade surplus was $5 million more positive in the first quarter of 2016 compared with one year earlier.

Figures 11a & 11b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Construction machinery production (Figures 11a and 11b)

  • We forecast that construction machinery production will post an 8% decline in 2016 before growing 2% in both 2017 and 2018.
  • Production fell 4% during February to April 2016 versus the same period one year earlier. The quarter-to-quarter momentum was, however, strongly positive.
  • Private nonresidential construction activity expanded 9% and public works construction grew 10% in the three months ending March 2016 compared with the same period one year ago.
  • Logging production dropped 1% from February to April 2016 versus one year ago.
  • Mining and quarrying production fell 14% in the three months ending April 2016 compared with the same period one year ago. There was growth in precious metals mining and nonmetallic minerals and quarrying but a huge decline in coal mining.
  • Construction equipment’s import to export ratio was 1.9 in the three months ending March 2016. Imports fell 12% and exports declined 27%; the trade deficit became $250 million more negative in the first quarter of 2016.
  • Caterpillar reports that their worldwide machine deliveries to users for retail sales, adjusted for inflation, were down 12% in the three months ending April 2016 versus the same period one year earlier. Construction industries’ sales were down 7%, resources industries’ equipment fell 28%, and energy and transportation retail sales dropped 34%.

Figures 12a & 12b

Source(s): MAPI Foundation

Source(s): 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 4% in 2017 and 10% in 2018.
  • Production fell 25% in the three months ending April 2016 compared with one year earlier and the quarter-to-quarter momentum was very negative.
  • WTI oil prices were $49 at the end of May. A price of $50 is thought to be the approximate breakeven point for new shale oil drilling, so U.S. oil production is close to being profitable again. The Energy Information Administration (EIA) forecasts a 9% decline in U.S. crude oil production this year.
  • The EIA forecasts that coal production will decline 17% in 2016 and then rise 4% in 2017.
  • Gold and silver mining in the United States increased 4% in the three months ending April 2016 compared with the same period one year earlier.
  • Oil and gas well drilling fell 56% in the three months ending May 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 43% while exports fell 42%; the trade surplus was $486 million less positive in the first quarter of 2016 compared with one year earlier.

Figures 13a & 13b

Source(s): MAPI Foundation

Source(s): 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 fall 4% in 2016, rise 5% in 2017, and grow 4% in 2018.
  • Production fell 2% in the three months ending April 2016 compared with the same period one year earlier and the momentum indicator was very negative.
  • In related subsectors, wood products production rose 2%, paper production fell 2%, textile mill production fell 3%, food production increased 1%, and plastic products production was flat from February to April 2016 compared with the previous year.
  • The Semiconductor Equipment Association reported that equipment bookings in the three months ending April 2016 were 1% higher than the same period one year earlier.
  • Construction of new manufacturing plants was unchanged (in inflation-adjusted dollars) in the three months ending March 2016 from one year earlier.
  • Industrial machinery imports were up 4% while exports fell 4% in the first quarter of 2016 compared with one year earlier. The industrial machinery industry is export-oriented, with a 0.8 import to export ratio. The trade surplus fell $308 million in the first quarter of 2016 relative to the same period last year.

Figures 14a & 14b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • The HVAC production forecast is for a 4% decline in 2016, 6% increase in 2017, and 4% gain in 2018.
  • Production fell 2% in the period of February to April 2016 on a year-over-year basis and the quarter-to-quarter momentum was very negative.
  • In related sectors, construction spending for home improvement fell 11% and inflation-adjusted private nonresidential construction rose 9% in the three months ending March 2016 versus one year earlier.
  • Nonresidential construction related to refrigeration is mixed. Inflation-adjusted food and beverage manufacturing construction fell 12% but inflation-adjusted food and beverage store construction rose 7% in the three months ending March 2016 versus one year ago.
  • HVAC has an import to export ratio of 2.2. Imports rose 5% while exports declined 7% and thus the trade deficit was $309 million more negative in the first quarter of 2016 compared with one year earlier.

Figures 15a & 15b

Source(s): MAPI Foundation

Source(s): 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 should fall 5% in 2016 and rise 2% in both 2017 and 2018.
  • Production fell 8% in the three months ending April 2016 over year-ago levels and the quarter-to-quarter momentum was negative 13%.
  • The U.S. Census Bureau reported that metalworking machinery orders (in dollars) grew 12% in the three months ending March 2016 on a year-over-year basis.
  • Metalworking machinery imports fell 10% and exports declined 15% in the first quarter of 2016 compared with one year earlier. The import to export ratio is 2.8, so the trade deficit was $167 million less negative in the first quarter of this year versus one year earlier.

Figures 16a & 16b

Source(s): MAPI Foundation

Source(s): 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 10% decline in 2016, then growth of 2% in 2017 and 4% in 2018.
  • Production fell 18% in the three months ending April 2016 compared with the same period one year earlier and the quarter-to-quarter momentum was even more negative.
  • Heavy-duty truck production was down 3% and the production of ships and boats fell 1% in the three months ending April 2016 over year-ago levels. The decline in marine construction, however, is not confirmed by employment in the industries—shipbuilding/repairing employment was unchanged. Boatbuilding employment gained 3% in the three months ending March 2016 compared with one year earlier. Ship and boat production is predicted to fall 3% this year, 5% in 2017, and 4% in 2018.
  • Excess capacity, tough greenhouse gas emission regulations, and regulatory preference for renewable energy restrain investment. Private electric power construction spending increased 5% in the three months ending March 2016 versus the same period one year ago.
  • Turbines compress gas in pipelines and power oil and gas well drilling. Pipeline and storage construction increased 11% in the three months ending March 2016 versus the same period one year earlier. Oil and gas well drilling in the United States, however, fell 56% in the three months ending April 2016.
  • The American Wind Energy Association reported that during the first quarter of 2016, 520 megawatts of wind turbines were installed—a huge gain from the 333 megawatts installed one year earlier. 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 11% but exports fell 14%. The industry has a 0.9 import to export ratio and thus the trade surplus was $271 million less positive in the first quarter of 2016 relative to a year ago.

Figures 17a & 17b

Source(s): MAPI Foundation

Source(s): 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 March 2016, inflation-adjusted material handling shipments were up 21% 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 7% in the three months ending March 2016 versus the same period one year earlier.
  • Warehousing and storage employment was up 7% in the three months ending April 2016 versus the same period one year ago.
  • Material handling equipment imports fell 12% and exports also fell 12%. The industry’s import to export ratio is 1.2, so the trade deficit turned $50 million less negative in the first quarter of 2016 from one year earlier.

Figures 18a & 18b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • The MAPI Foundation does not forecast electronic computer equipment shipments.
  • Computer shipments fell 15% in the three months ending March 2016 compared with one year earlier. Electronic computer prices declined 4%.
  • Electronic computer imports fell 2% while exports dropped 3%. With a large import to export ratio of 4.5, the huge trade deficit was $207 million less negative in the first quarter of 2016 compared with one year earlier.

Figures 19a & 19b

Source(s): MAPI Foundation

Source(s): 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 increase 3% in 2016, 4% in 2017, and 6% in 2018.
  • Production rose 13% in the period of February to April 2016 compared with one year ago.
  • Construction spending for communications infrastructure (in current dollars) rose 17% in the three months ending March 2016 versus one year earlier.
  • Defense communications are about one-tenth of the communications equipment market; new orders (in current dollars) in this area fell 18% in the first quarter of 2016 from one year earlier. Civilian communications equipment orders declined 5%.
  • Alarms, signaling equipment, and safety detectors employment declined 3% in the first quarter of 2016 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 6.7 (for every $1 of exports there were $6.70 in imports), domestic production accounts for only a small proportion of domestic consumption. Imports rose 3% while exports fell 13% in the first quarter versus one year ago. The very large trade deficit was $1.4 billion more negative in the first quarter of 2016 compared with one year ago.

Figures 20a & 20b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Semiconductors (Figures 20a and 20b)

  • World Semiconductor Trade Statistics, an association of semiconductor companies, collects semiconductor revenue statistics and projections. WSTS predicts no growth in 2016 and 3% growth in 2017.
  • Shipments fell 6% in the three months ending March 2016 compared with one year earlier and prices fell 4%.
  • 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 rose 2% and exports also increased 2% in the first quarter of 2016; the sizable trade deficit was $98 million more negative than one year earlier.

Figures 21a & 21b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • Instrument industry production is expected to grow 3% in 2016, 2017, and 2018.
  • Instrument production was up 2% in the three months ending April 2016 compared with one year ago.
  • Search and navigation shipments (in current dollars) rose 6% in the three months ending March 2016 compared with one year ago; defense search and navigation shipments gained 1% and nondefense shipments rose 16%.
  • The electromedical industry’s employment rose 1% in the first quarter of 2016 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 first quarter of 2016, industry employment fell 1% compared with one year earlier. Overall manufacturing production is growing at a slow pace year over year and there is a mixed picture in factory machinery investment. Manufacturing plant construction is flat.
  • 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 first quarter of 2016, industry employment declined 2% compared with one year earlier.
  • Navigational, measuring, electromedical, and control instruments have an import to export ratio of 1.3. Imports declined 3% and exports also fell 3%; the trade deficit was $115 million less negative in the first quarter of 2016 compared with one year earlier.

Figures 22a & 22b

Source(s): MAPI Foundation

Source(s): 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 1% in 2016, 2% in 2017, and 3% in 2018.
  • Production rose 1% in the three months ending April 2016 compared with one year ago but the quarter-to-quarter momentum was negative.
  • In related sectors, inflation-adjusted residential construction spending rose 4% in the three months ending March 2016 from year-ago levels while nonresidential construction of buildings was up 8%.
  • At 6.9, electric lighting equipment’s import to export ratio is one of the most adverse in manufacturing. Imports increased 3% while exports fell 2% in the first quarter of 2016 compared with one year earlier. The trade deficit was $102 million more negative than one year earlier.

Figures 23a & 23b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

Electrical equipment production (Figures 23a and 23b)

  • This subsector consists of transformers, motors and generators, switchgear, relays, and industrial controls.
  • The forecast calls for electrical equipment production to decline 2% in 2016 and then rise 1% in both 2017 and 2018.
  • Production was down 4% in the three months ending April 2016 compared with one year ago, with more negative momentum.
  • The factory operating rate was 75.3% in April 2016, up 0.8% from one year ago but below the long-term average of 78.5%.
  • Relay and industrial controls production appears to be growing at a slow pace. Employment in the industry was flat in the first quarter of 2016 relative to one year earlier. Manufacturing construction activity was also unchanged.
  • Electric motors and generators provide power for many machinery and transportation applications, while generators convert motion into electricity for residential, utility, and industrial uses. First quarter employment in the industry was down 2%.
  • Transformers and power distribution equipment tend to follow electric utility construction, the creation of new communities, and a replacement cycle; housing starts were up 14% in the three months ending April 2016. In the first quarter of 2016, electric power construction spending rose 5% and employment in the transformer industry was up a strong 4% compared with one year earlier.
  • Switchgear and switchboard apparatus production is likely posting growth. Industry employment was up 2% in the first quarter of 2016 compared with a year ago.
  • Electrical equipment imports were up 2% while exports fell 14%. The industry’s import to export ratio is 2.1, so the weakness of exports pushed the trade deficit $644 million more negative in the first quarter of 2016 compared with one year ago.

Figures 24a & 24b

Source(s): MAPI Foundation

Source(s): 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 6% in 2016 and 3% in 2017 and 2018.
  • Production increased 7% in the three months ending April 2016 compared with year-ago levels.
  • Surgical and medical instruments employment increased 3% in the first quarter but surgical appliances and supplies employment fell 1%.
  • 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 5% growth in employment in the first quarter of 2016. This suggests a burst of production growth.
  • Dental laboratories industry employment had a very strong showing, rising 7% in the three months ending March 2016. This is unusually strong growth in this sedate industry.
  • Medical equipment and supplies imports increased 4% while exports were up only 1%. With an import to export ratio of 1.3, the stronger growth in imports pushed the trade deficit $215 million more negative in the first quarter of 2016 compared with one year earlier.

Figures 25a & 25b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • Aerospace products and parts production will increase 1% in 2016, 3% in 2017, and 4% in 2018.
  • In the three months ending April 2016, production fell 2% compared with one year ago, but there is small positive momentum from the fourth to the first quarter.
  • Boeing reported 121 net orders for new commercial airplanes in the first quarter of 2016 and delivered 176 (down 4% from a year earlier). Boeing delivered 762 commercial airplanes in 2015 and expects 743 deliveries in 2016, a 2% reduction.
  • U.S. airline traffic—measured in revenue passenger miles—rose 5% in the three months ending February 2016 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 1% in the three months ending March 2016 versus one year earlier. Civilian aircraft and parts shipments fell 6% in this time frame.
  • With an import to export ratio of 0.4, aerospace is the largest net exporter in U.S. manufacturing. Imports fell 8% while exports were up 1% in the first quarter of 2016. The trade surplus was $1.3 billion more positive relative to one year earlier.

Figures 26a & 26b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • The MAPI Foundation does not forecast drilling production.
  • Drilling activity declined 56% in the three months ending April 2016 relative to one year ago and has sizable negative momentum.
  • Brent oil improved from $34 per barrel in late February to $49 at the end of May. The EIA predicts that U.S. crude oil production will decline 9% in 2016 and fall 5% in 2017.
  • Henry Hub natural gas rose from $1.78 per million cubic feet in late February 2016 to $2.12 in late May. Natural gas production is forecast to increase 1% in 2016 and 3% next year.
  • Baker Hughes reports that 78% of operating U.S. rigs looked for oil in May. The U.S. rig count for oil drilling was down 51% in May 2016 versus the same four-week period one year ago. The U.S. rig count for natural gas drilling was down 61% in the same period.

Figures 27a & 27b

Source(s): MAPI Foundation

Source(s): MAPI Foundation

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

  • Inflation-adjusted nonresidential spending should increase 9% in 2016, decline 1% in 2017, and fall 2% in 2018.
  • Nonresidential construction was up 9% in the three months ending March 2016 versus year-ago levels.
  • There was very strong construction growth in lodging (hotels), office buildings, private education, amusement and recreation, and communications in the three months ending March 2016. Moderate growth occurred in commercial, transportation, oil and gas pipelines and storage, and transportation. There were small gains in electric utility, healthcare, and religious construction.
  • Construction spending for factories, adjusted for inflation, was unchanged during January to March 2016 from one year earlier. The strongest growth was in transportation equipment and fabricated metal products. Small changes occurred in chemicals, plastics and rubber, and computers, electronics, and electrical. Food and beverages and nonmetallic minerals posted large declines. We forecast industrial construction spending to increase 5% in 2016, fall 9% in 2017, and drop 5% in 2018.
  • Private electric power construction should post 1% growth this year and then decline in 2017 and 2018 because of overcapacity and potential greenhouse gas emissions regulations.
  • The architectural and engineering firm billing index—a leading indicator—signaled a decline in January but then rebounded, showing modest growth in activity for February through April 2016. An employment indicator supports the growth premise. Architectural and engineering employment is up 2% in the three months ending May 2016 versus one year ago.

Figures 28a & 28b

Source(s): MAPI Foundation

Source(s): 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 4% in 2016 and 1% in both 2017 and 2018.
  • Public works construction was up 10% in the three months ending March 2016 compared with the same period one year ago and the quarter-to-quarter momentum was very positive.
  • The areas of strong growth in the last three months were commercial, transportation, education, and highway and street construction. Moderate growth occurred in sewer and waste disposal.
  • Recent declines in public construction spending were in healthcare, public safety, power, 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.
Kristin Graybill