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Slow Growth Expected in 2013

The Material Handling Industry has rebounded steadily in the years following the recession of 2008 and 2009. Following a trough in third quarter 2009, new orders have increased 20.1% in 2010, 24.2% in 2011, and are expected to grow 8-9% in 2012, according to the latest Material Handling Equipment Manufacturing (MHEM).

2013 projects to continue this trend, albeit with some downside risk. The outlook for new order growth is for a growth of 6% in 2013 going into 2014. Our growth forecast through 2014 continues to anticipate sluggish performance in the major elements of the U.S. and World economies. Slow macro growth worldwide holds downside risk for MHEM prospects, as illustrated in the chart below.

“Consumers’ and Investors’ confidence is best characterized as uncertain; unemployment, industrial production activity and factory operating rates (utilization) are improving modestly,” says Hal Vandiver, MHIA executive consultant. “All are favorably impacting MHEM; but do not indicate robust growth. Residential and non-residential construction, if forecasts hold, will contribute greatly to positive growth 2014 and beyond. We have extended the forecast of 2012 to 2013; and in 2014, indicated the expectation for slower growth.”

In addition to new orders, material handling equipment shipments are forecasted to have grown 9% in 2012, with 7.5% growth projected in 2013 and 2014. Domestic demand (shipments plus imports less exports) will likely mirror shipment growth in 2012, 2013 and 2014.

All of this data has led Material Handling Equipment Manufacturing to shift from “accelerating growth” to the “decelerating growth” phase. The industry may continue to vacillate between these phases over the next nine to fifteen months, as in prior expansion cycles.

Downside Risks
While the recovery has weak momentum, it has not ground to a halt. We expect growth of about 1.5% in the second half of 2012. A deeper Eurozone recession and a harder landing in China remain the principal downside risks. However, news of proposed European Central Bank support for sovereign debt has led us to reduce our U.S. recession risk to 20% from 25%.

While we forecast overall growth in 2013, these mitigating factors could tamper that. To stay current with market trends, be sure to look at leading indicators. Leading indicators are key economic variables that economists use to predict a new phase of the business cycle. A leading indicator is one that changes before the economy. Several economic time series tend to anticipate the cyclicality of the Material Handling Equipment Manufacturing time series. These indicators lead MHEM by 12 to 21 months. They are: PMI Index (12 months), FRB Industrial Production Index and the companion series Capacity Utilization (9-12 months), the Index of Consumer Sentiment (12 months) and Housing starts, the most significant indicator of Residential Investment, historically leads MHEM by 21 months until this business cycle, however for the remainder of this cycle is likely to be coincidental at best.

Some 12- to 21-months after these series “peak” or “trough” in their cycle, MHEM will very likely do the same. MHEDA members should keep up with these key indicators when planning for next year and going forward. Good luck!