What U.S. industries led in 2003 and will grow in 2004?
Toronto, ON -- Global Insight Inc. reported on Jan. 30, 2004, that the U.S. Federal Reserve's official estimates fo...
Toronto, ON — Global Insight Inc. reported on Jan. 30, 2004, that the U.S. Federal Reserve’s official estimates for industrial production in 2003 were disappointing. Total industrial output grew only 0.3% in 2003. This is on the heels of a 0.6% contraction in 2002 and a 3.5% drop in 2001.
From a level perspective, December 2003’s total output was still 2.7% lower than the peak experienced 42 months ago, in June 2000, and had only regained its March 2001 level. This has been the longest downturn in manufacturing in 20 years. And it is the length, not the depth, of the current downturn that has caused so much pain.
As with any downturn, there are both winners and losers. Indeed, a big winner remains the light truck and sport utility vehicle market. With a loss of nearly 285,000 total U.S. non-farm jobs in 2003 and 1,738,000 jobs since 2001, it looked like big-ticket items — like light trucks — would suffer. However, U.S. automakers have been marketing aggressively. Larger rebates, 0% financing, and even no money down provided incentives for potential buyers, particularly on sport utilities, where profit margins are larger.
While passenger car production declined, light truck and SUV output increased nearly 10% to keep up with demand. Other related industries such as motor-vehicle bodies also did well. Medium and heavy-duty truck manufacturing rose 5%, but remains 33% below its peak level of output experienced in early 2000.
Despite the strength in motor vehicles, the two top winners in 2003 were high-tech related. Computers and semiconductors continue to lead the U.S. investment recovery. Computers provide a relatively inexpensive way of improving efficiency and the bottom line. In addition, personal consumption of computers remains relatively stable despite a tight job market.
Nevertheless, 2003 was not a great year for computer and semiconductor manufacturers. Between 1996 and 2000, computer manufacturing grew at a 35% average annual rate, while semiconductor manufacturing increased 56% annually. Although these numbers reflect quality adjustments as well as quantity gains, they are still well above the increases seen in 2003.
Plagued with health issues (both at home and abroad), higher taxes, and a host of lawsuits, the tobacco manufacturing industry was the worst performer of 2003; tobacco output also contracted by 5.3% in 2002. Nonferrous metals excluding aluminum were also a major drag on overall manufacturing production. High natural gas and other energy costs, along with tough competition abroad, translated into a 13% output decline during 2003. Furthermore, the nonferrous metals industry faced stiff foreign competition in electrical machinery and traditional (non high-tech) investment.
As 2004 gets under way, Global Insight expects to see a turnaround in most manufacturing markets. The long-awaited recovery in traditional investment, along with stepped up manufacturing for materials, will create a new mix of winners and losers. Rising energy prices, continuing problems in Iraq, the weak U.S. dollar, and the presidential election will add a further twist to the new year.
It’s noteworthy that in October 2003, Global Insights predicted that, for U.S. industry, the growth leaders for 2004, based on change in constant-dollar revenues, would be:
1) Computer & Office Machinery 15.0%
2) Electronic Components & Accessories 11.6%
3) Ordnance & Accessories 7.9%
4) Pharmaceuticals, Soaps, & Toiletries 6.0%
5) Finance 5.1%
6) Health Services 4.8%.
Global Insight Inc.’s Canadian Service provides clients with analysis, data, and forecasts for the Canadian economy and the individual provinces. Its clients use the Canadian Service to assess economic, financial and investment risk, as well as business opportunities. The Canadian Service Forecasting Team has won a KPMG award for forecast accuracy three times over the past decade. For more information, visit www.globalinsight.com.