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July 23, 2015 02:00 AM

MAPI: Global conditions face 'headwind' for manufacturing

Steve Toloken
Assistant Managing Editor
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    Manufacturers Alliance for Productivity and Innovation

    A new report predicts the global economy is going to continue to be a source of headwinds for the U.S. manufacturing sector, even with the U.S. faring better than most major industrialized countries.

    The Arlington, Va.-based Manufacturers Alliance for Productivity and Innovation Foundation noted that U.S. manufacturing output contracted in the first quarter, which it blamed partly on unique circumstances like a very cold winter and strikes at U.S. ports on the West Coast.

    But it also noted more fundamental challenges like the strong dollar, weak global demand and reduced energy investment from plunging oil prices.

    “Data for April and May suggest that manufacturing output may very well contract in the second quarter of 2015 as well,” Cliff Waldman, MAPI's director of economic studies, wrote in the report. “Certainly, the weakening export picture … and the sluggish capital investment picture … are not exactly positive omens for the strength of U.S. manufacturing growth over the short term.

    “China's slowdown, thankfully not a hard landing, has been more protracted than many expected. The recent data from the eurozone, while a bit stronger, are being pushed into the background amidst the seemingly endless effort to resolve the Greek debt crisis.”

    “The Latin American economy has lapsed into a sluggish malaise with the emerging realization that fundamental reforms will be necessary if the region is to ever achieve sustainable prosperity,” he said.

    Manufacturing growth in the eurozone is vacillating between positive and negative, with growth slowing from 2.3 percent in the first quarter of 2014 to less than 1 percent in Q1 2015, MAPI said.

    A subhead in the report asks if Russia is a “crisis in the making,” with GDP down 2 percent in the first quarter. For Brazil, it notes a “deepening manufacturing contraction” this year with a possibility of a modest rebound next year.

    In Asia, it suggested China's economy is sending mixed signals, with “hints” that its slower growth may be bottoming out. In India, MAPI said the worst of the country's recent “sharp slowdown” has passed, and it notes “more consistently positive manufacturing output growth.”

    It's a complex picture, but the report says that economic growth in the non-U.S. industrialized economies and in developing economies will be below what's typically seen in recovery periods.

    MAPI said the non-U.S. industrial countries will see growth of only 2.3 percent by the fourth quarter of next year, below the 3-3.5 percent that's typical, while developing countries will see only 4.5 percent GDP growth, below the 5-5.5 percent expected.

    “With weak non-U.S. global growth and global deflation jitters likely to persist through 2015 and at least part of 2016, the strong dollar / weak oil combination will frame world economic developments over the short term,” Waldman said. “For the time being, global challenges will remain a headwind to strong and stable U.S. manufacturing growth.”

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