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Solid growth predicted over next two years

October 22, 2004
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ARLINGTON, VA-The Manufacturers Alliance/MAPI (www.mapi.net) continues to project solid growth in the next two years for the U.S. economy and the manufacturing sector. Evidence used in the forecast shows that a sustainable recovery remains on track.

The Manufacturers Alliance/MAPI Quarterly Economic Forecast predicts inflation-adjusted gross domestic product (GDP) growth to be 4.5% in 2004 and 3.7% in 2005. The 2004 prediction is down slightly from 4.9% in the May forecast, while the 2005 outlook remains the same. By supplying major assumptions for the economy and running simulations through the Global Insight Macroeconomic Model, the Manufacturers Alliance/MAPI generates unique macroeconomic and industry forecasts.

Manufacturing activity should continue to grow faster than the general economy, with industrial production growth expected to increase 6.0% in 2004 and 5.7% in 2005. The largest percentage gains will come from a rebound in the high-tech sectors of manufacturing. Computers and electronic products are expected to rise 19.6% in 2004 and 16.6% in 2005.

Non-high-tech industries will grow moderately this year and next.

Capital investment will play a role in sustaining growth for the first time since 2000. Real investment in equipment and software should increase 12.4% in 2004 and 6.8% in 2005, growing several times faster than the general economy. Net exports also will contribute to economic growth. Inflation-adjusted exports should rise 11.1% this year and 11.5% next year, while imports will increase at a more moderate 9.5% in 2004 and 5.0% in 2005. The current account deficit should begin to shrink next year.

The forecast also envisions the unemployment rate remaining relatively stable, averaging 5.6% in 2004 and 5.4% in 2005.

"We expect an acceleration in the pace of economic growth in the second half of this year," says Daniel J. Meckstroth, chief economist for the Manufacturers Alliance/MAPI. "Capital equipment investment should surge as businesses take advantage of accelerated depreciation before its end-of-year expiration and consumer spending growth steps up, propelled by job growth generated income. Domestic manufacturing benefits from a stronger expansion here and abroad."

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