ASA Advisor: Making headwinds
From the recent ASA Advisor prepared for ASA members by ITR Economics, the U.S. industrial economy continues to grow.
ITR reports annual U.S. industrial production was up 0.7% in August, while accelerating growth trends in the manufacturing sector (up 0.9% year over year) and mining sector (up 1.4%) are contributing to the accelerating growth trend in the U.S. industrial production.
ITR adds leading indicator evidence “generally suggests that U.S. industrial production will accelerate in into early 2018, however companies should plan for a slower pace of growth as a whole (1.1%) than in 2017 (2.2%), particularly in the second half of the year.
ITR says to plan for increasing volume and higher costs over the next three quarters if your business is related to the industrial economy. Additionally, ITR recommends not straight-lining your budget through 2018 and into 2019 because trends are shifting over the next 18 months.
Rotary Rig Count
Elsewhere in the most recent Advisor, the average North American Rotary Rig Count during the 12 months through September rose 43.8% above the same time last year. ITR says to expect the rig count to increase into early next year to support rising demand. The Rig Count, ITR adds, will then vacillate around current level through 2018.
Extend customer credit
ITR also reports total wholesale trade was 5.7% higher in the 12 months through August than the year earlier and that commodity prices are rising. Subsequently, ITR says to expect wholesale trade values to rise and to not be afraid to extend credit to your customer base this year while the economy expands.
An Advisor reader wrote into ITR asking about potentially upgrading older pieces of factory equipment, but is considering waiting until next year when the company cash position is better, while also considering borrowing for the purchases.
ITR Economics Economist Ben Thompson replied that this year is a good opportunity to borrow and save cash for later. “Keeping some ‘dry powder’ to handle contingencies and to make opportunistic purchases will put in good stead for the business-cycle rise of 2020 and 2021.”
Thompson continues in his response, “If you align well with the macroeconomy, consider the expected slowing growth in the latter half of 2018 and contraction in 2019 in your cash planning. Interest rates are relatively low, and inflation has been mild, making this a good time to use other people’s money and saving your cash for opportunistic purchases in 2019. This will also allow you to keep up with quality and the same cost changes your competition may be enjoying.”
ITR Economics prepares the ASA Advisor on a monthly basis for ASA members. For more on ITR Economics, visit www.itreconomics.com.