ASA Advisor: Expect business-cycle decline through much of 2019
The American Supply Association’s most recent issue of the Advisor, produced for ASA members by ITR Economics, suggests companies revisit capital expenditure plans with the expectation of business-cycle decline through much of 2019.
ITR notes U.S. total industrial production during the 12 months ending in October was up 4% from the same period a year ago. ITR adds U.S. total industrial production will rise through the first half of 2019 and then production will decline into early 2020 before subsequently growing through the remainder of that year.
ITR suggests taking caution not to overinvest. Although ITR expects macroeconomic growth to be weaker in 2019 than 2018, it is not anticipating a recession severe enough to drive down employment. It adds the pace of rise will slow, but further rise in employment is likely.
ITR also suggests that businesses should plan for the labor market to remain tight in 2019 with the ability to find new employees being labeled as a challenge. ITR recommends focusing on employee retention to avoid having to locate and train qualified applicants, while also evaluating your compensation packages to ensure they are competitive enough to retain existing employees and attract new ones.
ITR’s long-term view shows a weaker second half of 2019 followed by mild growth in 2020.
Also, the Rotary Rig count during the 12 months through November was up 19.9% from a year ago and is rising at a slowing pace. ITR points out both oil (up 22.5%) and natural-gas (up 13.4%) segments were trending along the back side of the business cycle.
Nonresidential construction in the 12 months through October was up 3.9% on a year-over-year basis. ITR says activity will rise through much of the nonresidential sector in 2019 with warehouse buildings construction expected to grow at a double-digit rate in 2019.
ITR says the total capacity utilization rate slowed in its pace of rise. ITR adds if the trend persists, this indicator would signal industrial production will slow in its pace of growth by the second quarter of 2019.