The U.S. economy is facing "more downside than upside," which has lowered GDP and manufacturing forecasts, according to the Manufacturers Alliance for Productivity and Innovation Foundation's most recent quarterly Economic and Manufacturing Outlook.
Myriad headwinds forced MAPI to lower its GDP growth forecast "a little" – now 2.2 percent for 2016 and 2.6 percent for 2017 – and reduce its manufacturing growth forecast "a lot" – now 1.1 percent for 2016 and 2.4 percent for 2017 – according to MAPI chief economist Dan Meckstroth.
The U.S. economy is fighting an uphill battle against an inventory correction; the strong dollar; net export drag through 2018; falling commodity prices and manufacturing price deflation; and the energy sector continuing to slash spending.
The rising inventory levels are particularly damaging to MAPI's manufacturing outlook. "High inventory means inventories will need to be reduced, which lowers the level of production," Meckstroth said.
However, Meckstroth said, strong domestic demand is buffering the U.S. and, to a lesser extent, Europe from the rest of the world, thanks primarily to job growth. "If you want something to watch, watch the employment numbers," he said. "That's what's keeping the U.S. economy going."
Other factors bolstering the U.S. include strong growth in motor vehicle and housing supply chains; cheap gasoline helping consumers; and cheap natural gas helping the chemical industry.
Recession risk is not high, Meckstroth said, but any number of factors – from oil & gas to softening U.S. trade – could tip the scales. "I don't think we're near a recession," he said. "But you can't rule it out."
