Do forecasts really matter in the manufacturing sector?

By Alan Kelsky via Multibriefs, Monday May 4, 2015

With so many factors in play, forecasting for a wide-ranging field like manufacturing isDo forecasts really matter in the manufacturing sector? never easy. Yet many organizations from the government to the private sector make predictions almost every day. What we see in the results are a variety of expectations — and revisions — for how manufacturing will grow in the coming months and years.

Here is a look at three recent predictions:

1. Bloomberg Business

On Jan. 2, Bloomberg Business ran an article called “Factories in U.S. Expand at a More Sustainable Pace.” This forecast based on:

  • Moderating growth at the end of 2014
  • Adjustment by manufacturers to weaker overseas markets
  • Steady demand from U.S. consumers

Another factor Bloomberg noted was that the weakening demand for manufacturing supplies was due to falling oil prices that would allow manufacturers to get goods and materials for less.

“It’s more of a pause that refreshes than anything to worry about,” said Michael Montgomery, a U.S. economist at IHS Global Insight in Lexington, Massachusetts. “Manufacturing is going to keep expanding. We’ll lose some ground on exports,” though in the U.S., “demand is growing.”

Four months later, the optimism had softened.

Bloomberg Business published a story on April 14 called “Strong Dollar’s Economic Ax to Fall on Small U.S. Exporters.” The story explains how large U.S. multinational companies have the ability to meet the challenges of a strong U.S. dollar, while small exporters do not as they have far fewer products or SKUs that they produce.

The next day, Bloomberg published a new story called “Manufacturing Struggles With U.S. Dollar Rising, Oil Falling.” This article discusses how other than cars, U.S. manufacturing showed no growth in March. Manufacturing did increase 0.01 percent in March, but this was the first advance in four months and does not make up for the February loss of 0.2 percent, according to the Federal Reserve.

“The dollar is a wet blanket on manufacturing,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut. “If the dollar remains this strong, we’re going to have headwinds for manufacturing for a while.”

2. MAPI Foundation

In discussing the future of the American economy, the MAPI Foundation developed three key reasons in December 2014 for predicting continued improvement in the economy. They are the fact that manufacturing production is forecast to grow in each of the the next three years:

  • 3.5 percent in 2015
  • 3.9 percent in 2016
  • 3.1 percent in 2017

Job growth will be the primary source of energy to grow our economy, and the growth of investment will come from our natural gas resources and infrastructure, the U.S. transportation infrastructure, the housing supply chain, medical care expansion, increasing consumer confidence and factory automation.

On April 15, just four months after their glowing forecast for the economy in general and manufacturing specifically, MAPI had this to say:

“The manufacturing sector experienced a small 0.1 percent output gain in March after contractions in January and February and zero growth in December. Nonetheless, the short-term picture for the U.S. factory sector is fairly bleak. Manufacturing production fell by 1.2 percent during the first quarter of 2015, the first quarterly contraction in factory sector output since the second quarter of 2009.

“In spite of the modest gain in factory output growth in March, production in key industry sectors such as primary metals, aerospace and furniture contracted. Motor vehicle output did grow by a strong 3.2 percent, but this was on the heels of a 3.6 percent decline in February and more modest contractions in December and January. The sluggish housing rebound is clearly having an impact on manufacturing performance as wood products output has now contracted for three consecutive months and furniture output has contracted in two of the last three months.”

3. NABE

On March 30, the National Association for Business Economics (NABE) altered their December 2014 forecast for 2015 and 2016. The newer report predicts:

  • More hiring, causing the unemployment rate to fall
  • A lower inflation rate
  • Increased growth in consumer spending

Additionally, the March report also forecasts businesses will spend more on both intellectual property and equipment, along with a small increase in stock prices. Also, the report stated that oil prices will stay under $70 per barrel through the end of 2016, which will spur manufacturing growth.

“Healthier consumer spending, housing investment and government spending growth are expected to make outsized contributions to the projected acceleration in overall economic activity. Accordingly, recent labor market strength is expected to continue,” John Silvia, NABE president and the chief economist at Wells Fargo, said in a statement.

The report also had some unwanted news, including:

  • A larger trade deficit
  • Reduced predictions for increasing hourly wages by 0.01 percent from its original forecast of wage growth of 2.5 percent.
  • Lowered company profit forecasts from December’s forecast of 6.7 percent to 4.7 percent.

 

About the Author

Alan Kelsky

Alan Kelsky is a freelance writer with a master’s degree in business administration from Xavier University with a specialty in healthcare management. Alan was formerly a hospital CEO with an active emergency room and was the CEO of an urgent care center in Pompano, Florida. He is also formerly the owner of Electric Control Services. His company worked with manufacturers and commercial building owners by offering energy audits, energy efficiency technology sales, installation and follow-up monitoring.\


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