Growth in US manufacturing will slow in 2007 and trail a lackluster economy that is weighed down by housing market troubles and a correction of business inventories, a manufacturing group forecast.

Inflation-adjusted economic growth will slow to 2.3% in 2007 and the manufacturing sector will expand an even slower 2.1%, according to a quarterly economic forecast from the Manufacturers Alliance/MAPI.

“The deceleration in economic growth is primarily a consequence of the continued housing slump, soft business investment, a surprise downshift in exports and inventory adjustment,” said Daniel Meckstroth, the manufacturing group’s chief economist.

However, the group expects a rebound in 2008 and there are some bright spots in 2007. For example industrial production is expected to grow fairly significantly, increasing 3.3% in next year.

The group’s forecast came a day after the Federal Reserve reported that industrial production jumped a greater-than-expected 0.7% in April on gains in utilities, auto and high-tech manufacturing output.

The nation’s factories, mines and utilities were operating at an 81.6% of capacity, more than economists expected and above its long-term average.


Even with slower growth this year, spending for computers and electronic products is expected to rise a solid 13.6% in 2007 and 13.0% in 2008, the manufacturing group forecast.

“Large percentage gains in spending, at least relative to the overall economy, will come in the high tech sectors,” the group said.

In addition, spending on nonresidential structures is expected to increase both in 2007 and 2008.

However, industrial equipment expenditures, while expected to advance by 1.1% this year, will decline by 2.3% in 2008. However, transportation spending is expected to fall by 6.7% in 2007 and rise by 8.2% next year, the group forecast.

“There are already signs of a rebound in business activity. The American consumer is resilient, the inventory correction has run its course and fundamentals remain strong for export growth,” Meckstroth said, adding that growth in the second half of this year is expected to pick up.

The group forecast that export growth will outpace that of imports through this year and next.

“Inflation-adjusted exports should rise 6.4% in 2007 and 9.4% in 2008, while imports are expected to increase 2.5% in 2007 and 5.3% next year,” the group forecast.

The unemployment rate is expected to remain low through this year and next. (Reuters)