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October 2019 Issue: Parametric modeling: What have we learned in 30 years?

By Reggie Hall | October 2, 2019

Not a rosy outlook in industrial markets

Scott Hazelton of IHS Markit gave an overview of the industrial markets for hydraulics at the recent NFPA International Economic Outlook Conference in Chicago. His outlook wasn’t a sunny one (“not a lot of roses,” he said), dovetailing with many of the other economic speakers at the conference — with indications that a coming recession in the United States would be small in size, hitting just before mid-2020.

He told the audience to look for a deceleration in manufacturing with risks on the upswing.

After growing 2.7% in 2018, the stage is set for manufacturing output to expand a mere 0.3% this year. The annual growth will remain modest — roughly 1% — in both 2020-21.

The total manufacturing orders rose 7% last year, but this year, the story is different, with a less than 1% rate through May. Orders of durable goods were up 8% in 2018, but only 1% through May. Similarly, nondurables orders were up 7% in 2018, but just 0.9% through May.

As far as total industrial production and manufacturing, that output actually declined from Q4 2018 to Q1 2019, and Q2 2019 appears to be headed for another decline.

Hazelton listed various signs of this coming manufacturing slowdown:

  • The U.S. dollar is expected to average 3% higher against its major trading partners during 2019 and remain generally strong through 2023.
  • Over the next five years, U.S. imports of goods should grow at a 3.4% average annual rate while exports are expected to grow 2.9%.
  • Domestic WTI oil prices should be down 9% this year and then rebound approximately 3% annually through 2023.
  • Natural gas prices should decline 16% during 2019 and another 7% in 2020.

Hazelton said that the influence of the tax cut stimulus on the industrial markets has now ended. And he noted that it had a very limited impact on business investment. The ongoing uncertainty on trade, tariffs and other policy issues has reduced business confidence — and as a result, this has put many business investment plans on hold.

Tariffs on aluminum and steel have made U.S. manufacturing less competitive compared to the rest of the world, he said. And the Chinese trade talks remain uncertain, as neither the Trump Administration nor Xi Jinping seem to want to budge on their stances.

Hazelton expects the U.S. dollar to strengthen further, creating a major headwind for export growth and a stimulus for import penetration. Many U.S. manufacturers have lost business to foreign competition, and that will likely to continue into next year.

Paul J. Heney – VP, Editorial Director
[email protected]

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