4Q17 will mark the 10-year anniversary of The Great Recession, yet year-end projections show that the U.S. manufacturing sector will not reach its pre-recession output levels.
Stephen Gold, CEO of the Manufacturers Alliance for Productivity and Innovation (MAPI), reported that in the wake of the prolonged downturn, the growth of the overall economy has been far more robust than that of the manufacturing sector.
Gold said once the economy bottomed out, manufacturing got off to a faster restart than the overall economy, growing 18 percent in the first five years, compared to 11 percent for U.S. GDP. But he said the sector then “hit a wall” and that manufacturing production must now grow another 6.7 percent to reach the peak set in December 2007. MAPI’s current forecast says manufacturing will not fully recover until 2019 or beyond.
Manufacturing has faced a series of headwinds that have stymied the recovery. One of the most important, Gold said, is uncertainty and lagging capital investments, caused by wondering what federal policy makers might do to help or hinder business strategies. He also points to stagnating economic conditions abroad, and the collapse of oil and gas prices. “As high energy prices can provide a shock to the economy, so can the reverse. When prices fall below a certain threshold, companies stop investing in equipment, R&D and people,” said Gold.
Rex Nutting, international commentary editor at MarketWatch, reminds us that the industry also has been impacted in recent years by a strengthening dollar and weak export markets. Overall, he said manufacturing output is growing, but barely.
In March 2016, manufacturing “turned a corner,” according to Goldman Sachs analyst Elad Pashtan, as regional surveys on the state of factories in Philadelphia, New York, Richmond, Kansas City and Dallas Federal Reserve districts all showed improvement. But he still calls the industry’s recovery fragile.
Yesterday, President Trump pledged to cut nearly 75 percent of federal regulations, which could jump-start manufacturing again. Only time will tell.