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ARLINGTON, VA-A worsening housing collapse continues to depress related industries, making for turbulent times in the US manufacturing sector, according to the Quarterly Industrial Outlook released March 31 by the Manufacturers Alliance/MAPI. The Arlington-based organization, however, says that any gloom this year should give way to a rebound in 2009.

The Washington, DC-based National Association of Manufacturers (NAM) comes to a similar conclusion. According to its year-end report released earlier in March, the manufacturing sector underperformed the overall economy in ’07 after outpacing the GDP for three consecutive years. Manufacturing production rose by 1.8%, the slowest pace in four years. Moreover, manufacturing production actually declined in two out of the past five quarters after 13 consecutive quarterly advances. Q4 output declined in 14 of the 19 major manufacturing industries, and for the year overall, eight of the 19 major manufacturing industries declined in output.

While overall manufacturing is not in recession, it is clearly struggling, observes MAPI chief economist Daniel J. Meckstroth. With housing starts down 26% in Q4 and expected to plummet another 33% in ’08, he says the US remains “in the midst of the most severe housing downturn anyone could have imagined.” On the other hand, he adds, the longer term outlook looks much brighter, with a 32% increase in the housing growth rate projected for ’09. In line with the improvement, he expects manufacturing production growth to rebound to 3.4% in ’09 after rising only 0.5% in ’08. NAM projects 1.5% growth this year.

“Any recession is bad news for manufacturing,” says Meckstroth. “However, the structure of the current downturn is concentrated in finance, real estate and construction and not on manufacturing-intensive demand such as business equipment and exports. Furthermore, the reduction in consumer spending may well hurt foreign imports more than domestically produced items.”

Prevailing weakness in manufacturing was evident in MAPI’s Q4 figures. Thirteen of the 27 industries tracked had inflation-adjusted new orders or production above the level of one year ago, 11 had production below the preceding year’s level and three remained flat. The largest drop came in the consumer goods, housing and equipment industries. The organization says this year should be particularly challenging for the manufacturing sector, with only 10 of 24 industries projected to show growth.

According to NAM, manufacturing employment fell by 28,000 jobs in January to a level of 13.7 million. However, more than 90% of the loss was in non-production employment. Furthermore, nine of the 19 major manufacturing industries collectively increased production employment by 20,000 in January, with aerospace and machinery leading the way. But employment fell in the remaining categories, with the largest decrease taking place in food and beverage production.

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