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ITA Forecast: Economic Activity Sustains Industrial Truck Sector Growth

By Brian Feehan, President, ITA

The element of a U.S. government shutdown and the recent fiscal debate in Washington on the debt ceiling added some uncertainty to the markets — although we have yet to accurately measure the exact level of uncertainty we do believe that there will be some negative impact in the fourth quarter. However, we also believe with this political instability behind us that normal economic activity will resume to a similar pace prior to the shutdown and debt ceiling debates. As we all know, Congress must again address these issues in January and February 2014. Hopefully, lessons have been learned and clear decisions will be made in a timely manner to avoid any unnecessary instability in the markets.

U.S. Economic Activity

ITA ChartThe Federal Reserve in September cut its U.S. economic growth forecast for this year and 2014. The economy was expected to grow between 2 percent and 2.3 percent this year instead of the 2.3 percent to 2.6 percent range seen three months ago. For 2014, gross domestic product growth was trimmed to 2.9 percent to 3.1 percent from the June estimate of 3 percent to 3.5 percent.

Inflation forecasts continued to remain well below the Fed’s 2 percent target for price stability. The 2013 estimate for core inflation (stripping out food and energy price changes) was unchanged at 1.2 percent to 1.3 percent. The rate is not expected to climb as high as 2 percent until 2015.

Increases in consumer spending and business investments in the second quarter boosted the U.S. economy, with the government announcing real GDP growth of 2.5 percent in mid-September. Even with modest gains in the second quarter, the U.S. has grown slowly in the first half of 2013, up just 1.8 percent. There have been some indicators in September that manufacturing activity and other data have accelerated recently. The National Association of Manufacturers (NAM) state that “surveys show that manufactures are generally positive about higher orders and production moving forward. Yet, it is also clear that persistent headwinds have prevented even faster economic growth — the NAM anticipates real GDP growth of 2.0 percent for the 3rd quarter.”

Employment is another sector in which we must follow closely. Automatic Data Processing (ADP) announced its job estimates recently stating that private sector employment increased by 166,000 jobs from August to September. ADP further reported that goods-producing employment rose by 19,000 jobs in September, a slight increase over its August growth rate. Within the goods producing sector; Construction payrolls added 16,000 jobs, while manufacturing payrolls increased by 1,000. Service-providing industries added 147,000 jobs in September, down from 152,000 in August.

The Bureau of Labor Statistics (BLS) announced that the unemployment rate fell from 7.9 percent in January 2013 to 7.3 percent in August 2013. This recent positive news about employment is important to help the U.S. economic recovery but it needs to be sustainable into next year.

Looking at the housing market, it was reported that new home sales rose 7.9 percent in August to an annual level of 421,000 recovering somewhat from a sharp drop in July. Higher borrowing costs had started to reduce residential sales activity, but with the Federal Reserve deciding not to taper its asset purchasing during its September meeting — mortgage rates have begun to fall, which should be beneficial in the short term. Many lift trucks are used in the housing industry, so we will continue to monitor this data point carefully.

Another set of data that we looked at is the Institute for Supply Management’s September Manufacturing ISM Report. This is a widely followed report because analysts believe it provides an advance look at manufacturing conditions and outlook that government reports don’t cover as quickly. It is important for us to recognize this report does not track hard data but the present situation in a number of industries derived from a survey of purchasing managers from those industries.

A reading over 50 from those surveyed indicates that a majority reported that conditions in their industry are improving. The September survey indicated faster expansion in September than in August, as the composite purchasing managers index (the PMI) rose to 56.2 percent in September up from the 55.7 percent in August and at the highest reading since April 2011.

Looking forward, it has been reported that the U.S. auto industry’s new-vehicle sales in 2014 will hit their highest level since 2006 as consumers continue to replace aging cars and trucks.

Edmunds (a well-known U.S. automotive industry source) forecasts sales next year will hit 16.4 million vehicles. That would be up from an estimated 15.5 million the firm expects in 2013 (the highest total achieved was in 2006 with 16.5 million vehicles).

U.S. Forklift Industry

It is important to take into consideration the above economic factors and more when considering the U.S. forklift industry and how current market conditions and economic activity is affecting our industry. The North American lift truck market continues to be cyclical and currently we are enjoying a nice recovery from the bottom of 2009.

In 2012 total retail truck sales for classes 1 through 5 (gross numbers including all five classes and five market sectors — U.S., Canada, Mexico, federal government and export) was over 197,000 units. This compares to the approximately 180,000 total units for classes 1 through 5 in 2011. So we are seeing at the present time some stability in the market. In July 2013 we surveyed the ITA members, and as a collective group we are forecasting total unit sales of truck classes 1 through 5 in 2013 to be approximately 180,000 to 184,000 units (excluding exports in this survey).

ITA Activities

Now let me turn to the activities of the ITA. The ITA priorities remain: international cooperation, engineering practices, accurate and timely statistics, industry communications & networking and the continuation of our OSHA Compliance Officer Training program.

The US & EU formally entered into bilateral trade negotiations in July of this year — known as the Transatlantic Trade and Investment Partnership or TTIP. As part of the trade negotiation process stakeholders from many different industries and non-governmental organizations are invited to comment on the proposed negotiations. The ITA submitted official comments to the Office of the United States Trade Representative where our comments strongly supported two primary objectives of the TTIP negotiations. Primary objective number one: the elimination of all tariffs immediately, and primary objective number two: harmonization of non-tariff issues through a transparent process.

We continue to engage our European industry counterparts to discuss the TTIP trade initiative. This meeting (and others like it) are excellent opportunities for us to work in conjunction with our industry partners from Europe to ensure that our positions align and that when our industry — on both sides of the Atlantic — is talking to respective stakeholders that they hear the same message from one global industry.

A lot of work remains and several complex areas will have to be addressed before reaching a conclusion to this trade agreement, however, if successful it will be a major driver of growth for both economies and the lift truck industry.

To provide some perspective on current trade in our industry, let me share with you some important trade numbers from the U.S. Department of Commerce regarding industrial trucks:

• European imports of industrial trucks into the United States in 2012 were valued at approximately $336 million. This compares to approximately $78 million in U.S. exports to EU countries.

• Chinese imports of industrial trucks into the U.S. in 2012 were valued at approximately $95 million. This compares to approximately $13 million in U.S. exports to China.

It is our hope that in the very near future we will begin to see real progress regarding the elimination of duties on our products into those markets.

A new initiative approved by the ITA Board of Directors during our recent Annual meeting this past September was the creation of a National Forklift Safety Day to take place each June. The National Forklift Safety Day will serve as a rallying point for manufacturers through the Industrial Truck Association (ITA) to highlight the safe use of forklifts. This day will provide an opportunity to educate customers, policymakers and the administration on forklift safety best practices. We look forward to working with other material handling associations and stakeholders on the development of this program. As additional information on this new program becomes available we will post it on the ITA’s website (www.indtrk.org) and encourage all of those interested contact the ITA.

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Brian Feehan is president of ITA.