Industrial Heating Equipment Association releases June economic outlook
The Industrial Heating Equipment Association’s June 2018 economic outlook shows many of the industries it follows either changing slightly or remaining “status quo.”
“That is consistent with the data that has been coming from other measures of the economy and that is an interesting place to be right now—and a predictable one,” IHEA said. “The real economic watchword might better be ‘indecisive’ or ‘confused.’”
In terms of new-home starts, IHEA said the housing sector “continues to defy the odds as well as the analysts.” IHEA noted the most recent data “shows that much of that growth this month was the multifamily and in communities that are still battling a shortage of available housing.”
IHEA noted there has been some decline in permits issues and the association pointed out that may signal a slowdown in building activity down the road.
IHEA labeled the steel sector as remaining in some turmoil “as few have any sense of where the policy initiated by (President) Trump will go.”
IHEA said steal consumption still is being driven to some degree by “the users that are trying to hedge against higher prices down the road.”
Industrial capacity utilization
IHEA said the rate of capacity utilization continues to creep closer to a level that would be considered normal (80% to 85%). That rate fell back in June a little.
“One of the factors at work here may be the impact of the corporate tax cuts,” IHEA noted. “This money has been spent in a variety of ways, but the small and mid-size companies have mostly been investing in new capacity – both human and machine. There is a period after a new machine is purchased when the output falls short of the investment – it takes time to get the maximum output (and that goes for new hire as well). There is a period in which capacity is not used efficiently, but as the machines are integrated, people are trained and new customers are brought on, the capacity is used efficiently again. That has been part of the reason for the slow advance towards normalcy.”
IHEA pointed out there have been declines in the price of some industrial metals the last few months, including aluminum.
“It had been expected that that aluminum would go the way of steel and at first it did, but that price surge was somewhat short-lived as there was already a surplus of the metal and demand fell off as the price rose,” IHEA explained.
IHEA added copper prices have plunged as usage has altered in the telecoms sector.
Purchasing Managers Index
The PMI New Orders Index hit a peak several months ago and was followed by several strong months for the total PMI,” IHEA noted.
“It has since weakened just a little, but still remains in exalted territory above 60,” IHEA stated. “This has translated into readings for the total PMI consistently in the mid- to high 50s. The slowdown—which really is minor—has been attributed to some of the uncertainty that has surrounded global trade and commodities prices. There has been evidence that inflation has been a bigger issue as well. When looking at some of the other index numbers that come from the ISM there is similar news as there has been good but slowing progress when it comes to both exports and hiring. In general, the service sector has been performing slightly better than the manufacturing sector.”
IHEA explained the big surge in capital expenditures at the beginning of the year was promoted by expiring tax breaks and the latest bump, it noted, “appears to have been a reaction to the threats of tariffs and trade wars. Companies wanted to get their orders in before there was a price hike.” IHEA added expenditures have been “pretty consistent over the last year and when there has been a deviation from the norm it was an upward trend.”
IHEA said the level of factory orders also has flattened out a little but “remain generally high.”
“The progress this year has not been rapid by any stretch but it has been fairly consistent,” it said. “The challenge has been that consumers have not been as engaged as they had been expected to be after the tax reductions. As predicted when the tax cuts came through – they were not really large enough to change consumer behavior significantly. For the most part these reductions made it possible to handle bills and obligations a little simpler but it did not change the way people had been buying. The summer was supposed to make a big difference but the impact has been less dramatic than hoped. The higher prices for gas kept many people off the road and in many cases gobbled up the savings that people saw with the tax cut.”