We are very excited to announce a new partnership between Interact Analysis and ITR Economics. ITR is the oldest privately-held, continuously operating economic research and consulting firm in the US. It boasts an extraordinary track record of forecast accuracy, delivering a 94.7% success rate since 1985.
Our objective in partnering with ITR Economics is to draw on its experience in predicting market cycles to help provide our clients with the most accurate and credible forecasts. Our recently published study, the Manufacturing Industry Outlook, which represents a critical component in supporting many of our research topics, was developed in conjunction with guidance from ITR. Our analysts at Interact Analysis are technologists first and foremost. Thus, being able to draw on the expertise of a renowned economic institute undoubtedly enhances our ability to more accurately forecast technology market cycles and provide a better service to our clients.
ITR Economics’ Approach to Forecasting Manufacturing
Manufacturing is an important sector in most developed economies around the globe. However, many companies involved in the manufacturing industry mistakenly look to Gross Domestic Product (GDP) forecasts when trying to develop their outlook for the future performance of the manufacturing sector in a specific country or region. This approach is flawed because Services is the largest component of GDP in economies in the developed world. Services do create underlying demand, but they are not, in and of themselves, a driver of capital investment. In the US, for example, Services accounted for roughly half (48%) of GDP in 2017, as can be seen in the chart below.
A much better barometer for the industrial component of the US’s economy, and specifically its manufacturing sector, is the US Industrial Production Index. This data series from the Federal Reserve Board comprises three components: Manufacturing, Mining, and Utilities. Manufacturing is the largest segment of Industrial Production, representing just over three-quarters of the total Index value. Mining and Utilities, which accounted for 14% and 10% of Industrial Production, respectively, make up the rest of the Index. Industrial manufacturing activity is primarily driven by business investment, and ITR Economics uses the Nondefense Capital Goods New Orders (excluding aircraft) data series from the US Census Bureau to gauge the performance of this activity. New Orders for the 12 months ending in March (latest available data) stood at an annual value of $785 billion, a much smaller portion of overall GDP than Services. Again, using the US as an example, Manufacturing comprises roughly one-eighth (12%) of total GDP. For this reason, ITR Economics uses Industrial Production data as our benchmark for industrial economic activity, particularly when it comes to developing our outlook for future manufacturing sector performance.
We believe that this on-going, close partnership with ITR Economics will help us to provide the manufacturing industry with what has been missing – credible forecasts that factor in industry cycles and downturns. We hope that these forecasts, coupled with our team’s vast industry experience will help provide real value to our clients and allow them to make smarter decisions.
Alex Chausovsky – Senior Consulting Advisor was the primary contributor to this article. You can find out more about Alex and ITR Economics here.