Smarter Machines Will Challenge the Human Desire for Control

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Several factors have emerged to temper the manufacturing production forecast for 2015 but a rebound is anticipated for 2016, according to the MAPI Foundation's U.S. Industrial Outlook, a quarterly report that analyzes 27 major industries. The MAPI Foundation is the research affiliate of the Manufacturers Alliance for Productivity and Innovation.

Manufacturing industrial production fell at a 1.0% annual rate in the first quarter of 2015—after 3.5% growth in 2014—primarily due to the severe winter weather in January and February that disrupted construction, transportation, trade, and commercial activity.

The MAPI Foundation forecasts manufacturing production growth of 2.5% in 2015 and 4.0% in 2016. The 2015 forecast is a decrease from 3.7% and the 2016 forecast is an increase from 3.6% in the March 2015 report. Manufacturing will continue to grow faster than the overall economy, which the MAPI Foundation anticipates will advance by 2.4% in 2015 and 3.0% in 2016. For 2017, growth is predicted to be 3.1% for manufacturing production and 2.7% for GDP.

"A number of factors that drove growth last year have changed in 2015," said MAPI Foundation Chief Economist Daniel J. Meckstroth, Ph.D. "A sudden, rapid decline in oil and natural gas prices was good for energy users but caused problems in energy drilling, exploration, and the material supply chain; a sudden, rapid rise in the value of the dollar hurt our trade competitiveness; a large inventory buildup this past winter drove the inventory/sales ratio to unwanted highs; and finally, consumers are cautious and risk-averse.

"Many of these shocks that are slowing growth this year will be absorbed and will not hold down growth in 2016," he added. "Presuming we have a return to a 'normal winter' this year, manufacturing should get a boost."

The report offers economic forecasts for 23 of the 27 industries. The MAPI Foundation anticipates that 19 will show gains in 2015, 3 will decline, and 1—alumina and aluminum production—will remain flat. The top industry performers will be engine, turbine, and power transmission equipment and industrial machinery, each with anticipated annual growth of 11%.

The outlook is improved in 2016, with growth likely in 22 industries, led by housing starts at 19%. Mining and oil and gas field machinery is expected to plummet by 18%, as manageable oil prices will continue to discourage most shale drilling and, commensurately, drilling investment.

According to the report, non-high-tech manufacturing production (which accounts for 95% of the total) is anticipated to increase 2.4% in 2015, 3.2% in 2016, and 2.9% in 2017. High-tech industrial production (computers and electronic products) is projected to expand by 4.7% in 2015, 9.1% in 2016, and 8.3% in 2017.

During the report period (February through April 2015), 20 of the 27 industries Meckstroth monitors had inflation-adjusted new orders or production at or above the level of one year prior, while 7 declined. The 20 industries were three fewer than in the previous report.

Meckstroth reported that 8 industries are in the accelerating growth (recovery) phase of the business cycle, 14 are in the decelerating growth (expansion) phase, 2 are in the accelerating decline (either early recession or mid-recession) phase, and 3 are in the decelerating decline (late recession or very mild recession) phase.