Latest posts by Adrian Lloyd (see all)
- We’ve featured in a new report from Microsoft, ‘Driving Growth in Small Businesses” - December 3, 2019
- Is The South Korea and Japan Trade Dispute Hindering Industrial Output? - November 21, 2019
- The Low Voltage AC Motor Drives Market – 2019 - October 29, 2019
In this guest post, Alex Chausovsky from ITR Economics provides insight into the US industrial and manufacturing sectors.
Industrial Economy Outlook
Industrial production in the US is in a relatively healthy state. In the 12 months through to May 2019, production was up 3.3% year on year. However, growth in the three major segments of the industrial economy – mining, manufacturing and electric and gas utilities – is showing signs of slowing down. Mining production was up 12.7%, manufacturing production was up 2.1%, and electric and gas utilities production was up 1.3%.
It is our belief that industrial production will likely peak in the near term. Activity will then decline mildly through the remainder of this year and into early 2020. We don’t view this as cause for alarm though; production will eventually recover and rise through the remainder of 2020 and through all of 2021.
The business-to-business sector has been an area of opportunity in recent quarters. However, new orders for non-defence capital goods are unlikely to rise much above their current level during this business cycle. The upcoming declining trend in new orders will persist into early next year. We’d advise businesses to consider pushing their products with a lower cost basis to appeal to increasingly price-conscious customers as the business cycle trends downward.
The total industry capacity utilization rate 1/12 ticked up in May. This rise, of one month, does not yet have the statistical significance needed to identify the start of a prolonged rising trend for this indicator. However, the utilization rate is signalling that cyclical decline will occur in production into at least late this year. If the rise in the utilization rate 1/12 persists, it would be a positive sign for production in early 2020.
Around the world, the trend of slowing growth continues. However, the industrial economies of Mexico, Brazil, and Western Europe are already in recession. The following table illustrates ITR Economics’ expectations for the global industrial economy for the remainder of this year through 2021.
US Manufacturing Sector Outlook
US total manufacturing production during the 12 months through May was up 2.1% year on year. Many of the segments in the manufacturing sector will trend along the back side of the business cycle during the remainder of 2019.
The automotive industry will be particularly weak this year. Light vehicle production in North America is expected to end the year below the 2018 level. Heavy-duty truck production will decline through the remainder of 2019. New orders for US defence capital goods, which have grown at double-digit rates in recent quarters, will end 2019 up just 4.6% from the 2018 level.
Elsewhere, food production in the US will plateau into mid-2020. There will however be opportunities in other segments; oil and gas extraction production and medical equipment production will both rise through the remainder of this year. However, our advice to most manufacturers would be to keep costs low for 2019 to better position themselves to invest for 2020.
If you would like to learn more, or have any questions then please contact us.