Despite a record level of material handling new orders in 2016, MHI it predicting that a contraction overall in Material Handling Equipment Manufacturing (MHEM) is likely in 2017.
For 2017, we see downside risks that could lead to a contraction with subsequent improvements in 2018 and 2019. The downside risks are the recent slowing in domestic manufacturing, the slowdown in oil and gas, the relatively strong dollar, slowing global growth, Brexit, and volatility in U.S. equity markets. As a result, material handling and the entire U.S. economy could be in for a downturn between now and the end of 2017.
As most of you reading this article know, the material handling industry touches everything and if you are focused on ecommerce and automation you are thinking “what downturn?” On the other hand, if you service the oil and gas industry or heavy manufacturing, there is a significant downturn happening already.
Although we expect weakness in 2017, MHEM forecasts for 2018 and 2019 indicate those are likely to be years of improvement for the material handling industry.
New Orders are likely to rise for 2016 (by +2.6 percent) to a record level of $34.6 billion.
New Orders are predicted to fall in 2017 (by -13.9 percent).
Shipments are expected to rise in 2016 (by +7.4 percent) to a record $34.3 billion, but they are expected to fall sharply in 2017 (by -9.7 percent). Recovery is expected to begin in 2018 and carry through into 2019.
Domestic Demand is expected to rise in 2016 (by +8.8 percent) to a new record of $36.4 billion, but it is expected to fall in 2017 (by -8.8 percent) to $33.2 billion. Although we are predicting a contraction in this area in 2017, it is significant to keep in mind that it will bring us back to 2015 levels, which were a record for our industry. We expect strength in 2018, as the economy rebounds. Strong imports should support 2016 domestic demand.
Imports are expected to rise in 2016 (by +4.9 percent) to a record level of $7.3 billion, while exports fall (by -4.7 percent) to $5.1 billion. Imports and exports are likely to be volatile in coming quarters.
Moderate Global Growth
The International Monetary Fund (IMF) reported global growth at 3.1 percent for 2015, with expected growth at 3.1 percent for 2016. On a positive note, in October 2016, the IMF presented its forecast for 2017 global growth at 3.4 percent. It should be noted that if global growth dips below 3.0 percent it indicates a very tepid global market.
Critical Economic Data to Watch in 2017
1.) The most important economic data to watch with forward-looking implications for material handling are the ISM Manufacturing Index and the MHI Business Activity Index (BAI).
2.) Automotive sales are critical, with U.S. light vehicle sales at a very high level of 17.4 million units in 2015. We expected automotive sales to slow in 2016, with a further slowdown in 2017, because of large lease fleets and a likely reduction in subprime auto loan issuance. Slower automotive sales could send overall retail sales lower.
3.) Oil prices remain critical, because of their implications for oil and gas credit exposures of financial institutions. Critical warnings from the Fed, FDIC, and OCC about bank exposures to oil and gas bad debt were issued in November 2015 and in July 2016.
The bottom line is that although we are forecasting a normal cyclical correction in 2017, it is mild considering the 7-year positive economic cycle we have enjoyed.
Trade Events are Positive Indicators
ProMat 2017 will be presented in Chicago from April 3-6 at McCormick Place. ProMat has seen positive growth and will showcase for the first time on two show floors (McCormick Place South and North Hall) with over 850 exhibitors.
We are also seeing great interest in our exhibit space selection for MODEX in 2018. Such activity signals not only confidence in the economy and our industry, but also the value MHI brings to our members and the user community.
You can learn more about MHI and our programming at MHI.org.