MAPI: The recovery is real

Forecast predicts GDP will expand by 3.3 percent in 2010.

Enough indicators are now emerging to reflect that the U.S. economy is poised to trend upward in the next two years, reversing the 2.4 percent decline in 2009, according to a new report.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted gross domestic product (GDP) will expand by 3.3 percent in 2010, followed by 2.9 percent growth in 2011. By supplying major assumptions for the economy and running simulations through the IHS Global Insight Macroeconomic Model, the Alliance generates unique macroeconomic and industry forecasts.

Among the positive signs of resurgence after the "Great Recession" is an increase in both consumer spending and business spending, especially in equipment and software, and a stronger inventory swing.

"Jobs have come back more quickly than we previously anticipated, which makes this a 'real' recovery and signals that consumer spending may have staying power. Therefore this organic growth in the U.S. economy suggests a positive feedback loop," said Daniel J. Meckstroth, Manufacturers Alliance/MAPI chief economist. "Also, businesses seem to be picking up the pace of equipment spending. Orders are being re-instated after what had been a period of 'panic cancelling'. After a flat first quarter of spending we are expecting double-digit growth through the rest of 2010."

Despite the signs of optimism there are still some speed bumps. For instance, government and residential investment spending were both down in the first quarter of 2010, and manufacturing production remains 11 percent below December 2007 levels.

"We clearly are in the midst of a moderate recovery, but when the recovery is put in context of following a very severe recession, it is relatively weak compared to previous post-recession periods," Meckstroth added.

Manufacturing production growth declined 11.3 percent in 2009 but is expected to claw its way back with 6.1 percent growth in 2010, and additional 6.1 percent growth in 2011.

Production in non-high-tech industries is expected to increase by 5 percent in 2010 and by 5.2 percent in 2011. High-tech manufacturing production is anticipated to improve significantly, with impressive 18.3 percent growth in 2010 followed by robust 14.8 percent growth in 2011.

The forecast for inflation-adjusted investment in equipment and software is for 12.7 percent growth in 2010 and for 12.8 percent growth in 2011. Capital equipment spending in high-tech sectors will also continue to improve. Inflation-adjusted expenditures for information processing equipment are anticipated to rise by 14.5 percent in 2010 and to increase by 6.7 percent in 2011.

MAPI expects industrial equipment expenditures to advance by a more modest 3 percent in 2010 before surging by 23.1 percent in 2011. The outlook for spending on transportation equipment is for a solid 38.2 percent increase in 2010 and for 37.9 percent growth in 2011. These figures should compensate for a 48.7 percent decline in 2009.

Spending on non-residential structures is the lone GDP expenditure category expected to decline in each of the next two years, falling by 14.2 percent in 2010 before decreasing further, by 6.5 percent, in 2011.

Exports and imports will both see gains. Inflation-adjusted exports are anticipated to improve by 12 percent in 2010 and by 7.9 percent in 2011. Imports are expected to grow by 11.4 percent in 2010 and by 7.8 percent in 2011. MAPI forecasts unemployment to stay high but improve marginally over the next two years, averaging 9.7 percent in 2010, and 9.2 percent in 2011.

The price per barrel of imported crude oil is expected to average $74.90 in 2010 before heading to $78.2 per barrel in 2011, well above the $59.40 per barrel in 2009. Manufacturers are expected to add nearly 400,000 jobs in 2010 and another half-million in 2011.