Manufacturers will flirt with recession during the first six months of 2008 before rebounding in the second half of the year, according to a quarterly economic forecast released Thursday by the Manufacturers Alliance/MAPI, an economic think tank.
After analyzing the impact of the housing sector collapse, the downturn in auto sales, tightened consumer spending and the recent slowdown in the services sector, the alliance predicts that inflation-adjusted GDP growth will slow to just 0.6 percent in the first two quarters of 2008 before returning to growth in the second half of the year.
For the manufacturing sector alone, the alliance's chief economist, Daniel Meckstroth, foresees production growth dropping from 1.9 percent in 2007 to around 0.5 percent this year. The sector is expected to rebound considerably to 3.4 percent growth in 2009.
The authors of the report expect overall GDP growth of 1.3 percent for 2008 and 2.5 percent in 2009. In the short term, manufacturers are bracing for a recession.
A recession is defined as two or more consecutive quarters of economic contraction. The report notes that recessions often result from "severe shocks," of which the country has had its share. Falling housing prices, rising oil prices and a credit crunch have curbed spending.
"Economic conditions will get worse before they improve," Meckstroth said. However, he predicted that the government's stimulus package and the Fed's cutting of interest rates "will help stimulate a recovery later this year."
The alliance forecast envisions the unemployment rate rising to 5.4 percent in 2008 and to 5.5 percent in 2009.
When conditions begin to improve, not all businesses will enjoy the resurgence equally.
U.S. production in non-high-tech industries is expected to decline 1.2 percent this year and grow by 2.6 percent in 2009. The computers and electronics products sector and certain other high-tech industrial production are expected to rise 14.3 percent in 2008 and 10.1 percent in 2009.
Capital equipment spending will vary, with information processing equipment purchases expected to rise 5.6 percent in 2008 and 2.9 percent in 2009, with machinery expenditures expected to decline 7.1 percent in 2008 before growing 1.0 percent in 2009.
Dee DePass • 612-673-7725