Manufacturers Cut '05 Growth Outlook, See '06 Rebound

A U.S. manufacturing group on Thursday cut its outlook for 2005 growth and factory output due to the destruction of Hurricanes Katrina and Rita, but said economic expansion should rebound in 2006 as rebuilding begins.

The Manufacturers Alliance/MAPI (search) downgraded its forecast for third-quarter gross domestic product growth to a 3.3 percent annual rate, down from 4.2 percent projected a month ago. The outlook for fourth-quarter growth was cut to 2.3 percent from the 3.0 percent predicted in August.

Economic growth slowed to a 3.3 percent pace in the second quarter from 3.8 percent in the first three months of the year, according to government figures released on Thursday.

"The back-to-back hurricanes in the Gulf Coast (search) region within a three-week time span hit the country in the most vulnerable spot — our carbon fuel supply," said Daniel Meckstroth, the group's chief economist.

"The most disruptive impact of the hurricanes on the overall economy will be the higher price of gasoline, natural gas and fuel oils on consumers and industry," he said.

Factory output has been particularly hard-hit by the storms. MAPI slashed its forecast for annualized growth in manufacturing production to 3.0 percent in the third quarter and just 1.8 percent in the fourth, down sharply from forecasts last month of 4.7 percent and 4.1 percent, respectively.

Still, MAPI researchers said the deceleration this year should be followed by higher growth in 2006, as reconstruction efforts gather steam.

The group raised its outlook for first-quarter 2006 GDP growth (search) to 4.0 percent from 3.4 percent forecast in August, and bumped up predictions for second-quarter growth to 3.8 percent from 2.9 percent previously.

The changes to the forecast had little impact on the outlooks for 2005 and 2006 as a whole. MAPI cut its 2005 GDP growth forecast to 3.5 percent from 3.6 percent a month ago, but raised its 2006 forecast to 3.3 percent from 3.2 percent — essentially shifting the timing of some growth from the second half of 2005 to the first half of 2006.

"Ironically, the recent tragedies may assist electronic high-tech industries such as computers, semiconductors, and communications equipment, but the lingering effects of higher energy prices will depress the non-high-tech sectors such as petrochemicals, metals and motor vehicles," MAPI said.