Forecast: Power Construction, Manufacturing to Lead Growth in 2012
The bottom line of Modern Distribution Management’s recent Economic Outlook webcast: The U.S. is unlikely to go into double-dip recession. Despite a sputtering U.S. economy late in the third quarter, growth in both the U.S. and Canada is expected in 2012.
Jeremy Leonard, economic consultant for the Manufacturers Alliance for Productivity and Innovation (MAPI), presented a 2 percent GDP growth forecast for the U.S. in 2012 and 1.9 percent growth for Canada. Industrial production is expected to grow 3.4 percent in the U.S. in 2012; in Canada it is expected to grow more slowly at 2.6 percent.
Nonresidential investment is expected to grow at the greatest rate in 2012 in both the U.S. and Canada, with 6.8 percent forecast in the former and 6.3 percent in the latter. With 6.8 percent forecast growth, the U.S. is expected to see stronger growth than Canada (2.8 percent) in residential construction.
That said, uncertainty still does exist due to the European debt crisis, which could plunge the EU into a recession in the next year. Leonard expects a slowdown in China, as well, having an impact on the global economy and U.S. manufacturers. “There are risks out there,” Leonard said. “Some can be predicted and some can’t. That’s playing into the uncertainty we’re dealing with.”
On the domestic front, “political gridlock is also clouding prospects,” he said. This is “causing headaches” for businesses that need more certainty in taxes and government spending.
Unemployment continues to be high, despite a drop to 8.6 percent from 9 percent recently. However, Leonard attributed that drop to a decline in people looking for work - not a significant increase in jobs. Payroll employment is growing less than the average for the past 12 months - “not even enough to keep up with natural growth in the labor force.” The news wasn’t all bad on the employment front. Leonard said that the labor market may be turning a corner, but policy gridlock in Washington D.C. is not helping.
Manufacturing overall is leading the economy out of the recovery, he said, and a big part of this is due to export growth led by automotive, consumer and capital durable goods. “Many durable goods industries have taken advantage of pent-up demand domestically but many are recovering due to demand around the world.”
The industries leading in production growth include: nonmetallic minerals, primary metals, fabricated metals, machinery, computers and electronics, and transportation equipment. On the nondurable side, many areas such as textiles are weak. Strongest product growth has been and will be seen in rubber and plastic products (related to the transportation equipment growth) and miscellaneous manufacturing, of which a large piece is medical devices.
“The basic story on manufacturing is we forecast decelerated growth in 2012 but that the sector will continue to lead the overall economy - particularly in the durable goods sector,” Leonard said. In Canada, manufacturing may grow less and be less competitive due to a strong Canadian dollar and less productivity growth than in the U.S.
While GDP has been growing since mid-2009, construction is still at the same low number as in 2010. In fact, there has been zero change in construction spending since October 2010.
Ken Simonson, chief economist for The Associated General Contractors of America, expects the strongest gains in construction in power and energy, as well as a variety of manufacturing categories. Warehouse and private transportation are also areas he expects growth in 2012. “We have some signs of hospital construction and private higher education construction coming back,” he said.
On the residential front, “the biggest growth market should be apartment construction.” He said it is unclear how soon single family home construction will come back, but does not expect it to happen in 2012. Permits and housing starts for single-family homes have barely changed in the past 12 months. However, multifamily permits and starts are up 48 percent and 89 percent respectively since October 2010.
Government spending on construction will continue to be weak in 2012, Simonson said. Public construction spending has fallen 9 percent since October 2010. Before that, the market was benefiting from stimulus funding, military base realignment and hurricane recover projects.
Simonson expects a lower level or flat spending in many areas by the federal government, including highway and airport construction, and federal office building construction.
State spending on construction will also continue to be weak, as states start to collect more taxes and dedicate funds to rebuild pensions and other income security vehicles. Local governments are seeing a continued decline in property tax receipts, which impacts their ability to spend locally, especially on school construction.
Nonresidential construction seems to hold the greatest hope for 2012; construction spending in nonresidential is up 8 percent from October 2010. What’s driving that? Power projects are a big part of that with double-digit growth in spending, including shale projects in Pennsylvania and surrounding states, North Dakota and in Texas. As a result, there’s been a lot of downstream investment, as well as investment in transportation and transmission infrastructure.
Manufacturing construction to build capacity state-side is also expected in 2012. Material costs in construction continue to be volatile, with many material costs growing at a rate higher than the consumer price index.
< Back | Printer Friendly Page
Article Archive Search
Search by keyword
Search by topic
- Customer Service
- Distribution Management
- Human Resources
- Importing / Exporting
- Information Technologies
- Inventory Management / Warehousing
- Leadership & Management
- Member Profiles/Q&A
- NAHAD Hose Safety Institute
- News from NAHAD
- Products / Technical / Applications
- Public Policy
- Sales, Selling & Marketing
March 8-11, 2015
Our 22nd Year!
Indianapolis, IN, USA
April 22-26, 2015
Loews Miami Beach Hotel
Miami Beach, FL, USA