The U.S. economy and Material Handling Equipment Manufacturing (MHEM) enjoyed solid growth in 2018, but the outlook for 2019 and 2020 is not as strong. After one of the longest U.S. expansions in history, slower growth appears likely in coming quarters.
The potential for a tighter U.S. monetary policy, rising levels of U.S. debt, and risks associated with the US-China trade war present downside risks to growth and the overall material handling outlook. Additionally, rising U.S. labor costs – along with the prospects of higher capital costs – present downside risks to corporate profits.
In October 2018, the IMF incorporated some of the downside risks to growth from tariffs and trade concerns. As a result, their global growth forecasts were lowered for both 2018 and 2019 to 3.7 percent from the previously published forecasts of 3.9 percent.
Aside from trade risks, there are a number of other risks that threaten the economic outlook – and company profitability. Rising interest rates, rising labor costs, high domestic steel costs, and equity market volatility present additional downside risks to the US economy, corporate profits, and the material handling outlook for 2019 and 2020.
During 2018, the US labor market strengthened to the tightest levels since the late 1960s. This can be seen in the sharp drop in the US unemployment rate (See Figure). Even though a strong labor market is a sign of a strong economy, the overly tight US labor market threatened business operations and corporate profit margins in 2018.
Since the material handling industry touches everything, it is important to look at this information and note where your customers are in the business cycle. For example, those who are focused on e-commerce will, in all likelihood, experience growth in 2018 and 2019 although at a slower rate.
New Orders are expected to rise for 2018 (by 10.8%) to a record level of $34.9 billion.
New Orders are predicted to fall to $33.3 billion in 2019 and to $32.0 billion in 2020.
Shipments are expected to rise in 2018 (by 11.1%) to a record $33.3 billion, and they are expected to fall in 2019 to $32.2 billion and continue to fall to $30.7 billion in 2020.
Domestic Demand is expected to rise in 2018 (by 13.7%) to a new record of $38.1 billion and continue to fall to $37.1 billion in 2019 and $34.5 billion in 2020.
Imports are expected to rise in 2018 to $10.2 billion, while exports rise to $5.4 billion. Imports are expected to fall to $9.9 billion while exports falling to $5.0 billion in 2019.
The increased levels of risk justify keeping a close eye on the global purchasing manager index (PMI) data as well as the MHI Business Activity Index (BAI). These are important reports with forward-looking implications for the US and global economies – as well as for material handling and supply chain business activity.
Trade Events are Positive Indicators
Even though we anticipate a slowdown, it is predicted to be a normal adjustment in the business cycle. ProMat 2019 will be presented in Chicago from April 8-11 at McCormick Place. ProMat has seen positive growth, with the show floor sold out and will showcase solutions of nearly 1,000 exhibitors.
We are also seeing record interest in our exhibit space selection for MODEX in 2020. Such activity signals confidence and a positive indicator on the economy and our industry.
You can learn more about MHI and our programming at MHI.org.