Strong Consumer Demand Driven by Job Gains

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Strong consumer demand driven by job growth should lead to increased manufacturing production through 2017, according to a new forecast.

The MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation, released its quarterly economic forecast, predicting that inflation-adjusted gross domestic product will expand 2.9% in 2016 and 2.7% in 2017, both on par with the August 2015 report. GDP growth for 2018 is anticipated to be 2.5%. All estimates are above the anticipated 2.4% GDP growth for the U.S. economy in 2015.

During the next few years, manufacturing production is also expected to outpace the forecast of 1.8% growth in 2015. Output is anticipated to advance by 2.6% in 2016 (down from 3.4% in the August report) and 3.0% in 2017, a slight decrease from 3.1% in last quarter's analysis. The foundation predicts 2.8% growth in 2018.

The November 2015 reports offers a five-year horizon in which GDP is expected to average just under 2.6% growth from 2016 to 2020 and manufacturing production to average 2.6% growth during that time frame.

"There are strong deflationary pressures that are spreading, such as lower global energy prices, China's economic restructuring, and a forecast for slow price recovery in commodities," said MAPI Foundation Chief Economist Daniel J. Meckstroth, Ph.D. "Also, we are not anticipating negative shocks such as the harsh winter and California port strikes to repeat themselves in 2016. Strong domestic demand buffers the United States from the rest of the world, where global manufacturing continues to slow.

"We expect a modest acceleration in manufacturing growth over the next two years before it decelerates," he added. "Consistently strong job growth is driving the economy. New workers mean more income, which translates into more spending."

Still, Meckstroth sees some challenges.