Ready, set, grow: Manufacturing will outpace GDP growth in 2014

Although manufacturers can expect modest 2 percent growth through the remainder of 2013, the brief lull gives opportunistic executives a chance to prepare for an uptick in business next year.

Gus Faucher, senior economist for The PNC Financial Services Group, attributes his optimistic forecast to a rise in business investments, fueled by the resolution of murky tax and sequestration issues, and the continuation of record-low interest rates.

“I think the U.S. will maintain an edge in high value-add manufacturing because we have highly skilled, productive labor,” Faucher says. “Maintaining our competitive advantage requires ongoing development of our manufacturing workforce.”

As the economic recovery proceeds, in what areas will spending accelerate most? Manufacturers of home building products and materials, furnishings, appliances and so forth should have a strong 2014, thanks to the rebound in the residential real estate market. In turn, those manufacturers will purchase more production equipment, raw materials, parts and other items. The wealth effect in real estate will stimulate growth throughout the supply chain.

Will rising global demand for U.S. made products including semiconductors, medical devices and specialized materials manufacturing propel employment gains over the next few years? Post-recession hiring will wane next year as manufacturers look for productivity gains from workers added since employment levels bottomed out in early 2010. Although manufacturing is back up to 12 million workers, that’s still well below the 2006 peak of 14.2 million. The mantra continues to be: Do more with less.

How could the expansion of the shale oil industry affect manufacturing? Shale oil exploration and extraction will be a boon to ancillary industries and all U.S. manufacturers that rely on natural gas for production, since it will lower energy costs over the long-term. Moreover, it will give America a much-needed competitive advantage in today’s spirited global marketplace.

 

Augustine (Gus) Faucher is a senior economist for The PNC Financial Services Group. He is responsible for contributing to the preparation of PNC’s U.S. economic forecast and alternative economic scenarios.