MAPI: GDP to expand in 2011

Investment in business equipment and increased exports will drive economic growth over the next five years according to a new report.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts that inflation-adjusted gross domestic product (GDP) will expand by 1.8 percent in 2011, by 2.1 percent in 2012, and by 2.4 percent in 2013. The 2011 forecast represents a slight upgrade over the previously estimated 1.6 percent growth, while the 2012 forecast is on par with 2.1 percent growth anticipated in the August 2011 quarterly report. MAPI's November report traditionally provides a five-year forecast; GDP is predicted to average 2.9 percent annual growth from 2012 to 2016.

"Recently, the U.S. economy has performed a bit stronger than we thought, yet there is no indication of significant improvement, so we kept the growth rates for 2011 and 2012 in the same range," said Daniel J. Meckstroth, Ph.D., MAPI Chief Economist. "Consumer spending is restrained by sluggish job growth and minimal wage increases, and combined with the impaired housing market, we do not foresee a return to debt-based growth. Instead, drivers will be increased investment in business equipment and trade. Also, we are seeing some modest growth in non-residential construction, suggesting that the sector's recession is bottoming out."

Manufacturing production will outpace the overall economy and is expected to show growth of 4.3 percent in 2011, 3.4 percent in 2012, and 3.8 percent in 2013. The 2011 and 2012 figures have been adjusted upward from MAPI's August forecast of 4.1 percent and 3.2 percent, respectively. Manufacturing is expected to see a net increase in hiring, with the sector forecast to add 230,000 jobs in 2011, 170,000 in 2012, and 140,000 in 2013.

There remain, however, a number of red flags for the outlook.

"The risk of another recession is uncomfortably high; we put the probability at 40 percent for 2011," Meckstroth said. "The main risk is that the European sovereign debt crisis may cascade from European banks to the U.S. banking system and interfere with interbank lending and, ultimately, credit availability. Another concern is that job growth will stop. U.S. economic growth is already at a 'stall speed' of 2 percent or less, and if we had a major shock it could precipitate a major crisis.

"Additionally, there is already a shift from fiscal government stimulus to austerity that we expect to last the next five years or more, as U.S. politicians attempt to get control of our unwieldy public debt," he added.

Production in non-high-tech industries is expected to increase by 4.1 percent in 2011, by 3.3 percent in 2012, and by 3.2 percent in 2013. High-tech manufacturing production, which accounts for approximately 10 percent of all manufacturing, is anticipated to improve at a higher rate, with growth of 7.6 percent in 2011, 5.8 percent in 2012, and 10.4 percent in 2013.