Economic Forecast: Patches of light amidst scattered gloom for materials handling

Some industries will prosper, others will continue to struggle into the year ahead

Tom Andel -- Logistics Management, 8/19/2008

Economic activity in the manufacturing sector expanded in early summer, following four months of contraction. In fact, the overall economy grew for the 80th consecutive month, according to a recent Manufacturing ISM Report on Business.

The report noted that manufacturers’ inventories increased in June as the Inventories Index registered 51.2%, which is 3.2 percentage points higher than the 48% reported in May. This was the first month of inventory expansion following 25 consecutive months of inventory liquidation. An Inventories Index greater than 42.4%, over time, is generally consistent with expansion in the Bureau of Economic Analysis’ (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Among the nine industries reporting growth are:

· paper products

· computer and electronic products

· petroleum and coal products

· food, beverage and tobacco products

· chemical products

· primary metals

· furniture and related products, and

· fabricated metal products.

The industries reporting contraction are: wood products; electrical equipment, appliances and components; transportation equipment; machinery; nonmetallic mineral products; apparel, leather and allied products; and plastics and rubber products.

Do these numbers constitute any kind of long-term trend?

“I think it’s safe to say the petroleum industry won’t be going into recession in 2008, nor will chemical, and food and beverage,” says Norbert J. Ore, C.P.M., chair of the Institute for Supply Management Manufacturing Business Survey Committee. “Electronics and electrical equipment are good and materials handling is getting some of what these people are getting. There’s still a lot of industrial capital expansion taking place in power plants, refineries and energy making facilities.”

However, Ore adds, until we see those industries that are on the bottom start to pick up, the economy probably won’t change much.

Indeed, the latest Material Handling Equipment Manufacturers (MHEM) Forecast released by MHIA last month reports that prospects for 2009 have changed for the worse from this time last year. Instead of a rebound, it now appears that the contraction forecasted for 2008 will continue into 2009. For this we can thank the housing market contraction, oil price impact, reduction in corporate profits, and flagging consumer and investment confidence.

“Not one of our leading indicators clearly predict a turn in 2008 or 2009,” MHIA sources noted.

MHIA’s outlook for 2008 and 2009 calls for a mild market contraction. MHEM New Orders grew 8.3% in 2007. MHIA’s forecast is for modest growth in 2008 leading to a contraction in the 5% to 7% range continuing in 2009 with a possible recovery in late 2009 or early 2010.

MHEM Shipments expanded 8.9% in 2007. Buoyed by a currently healthy backlog, Shipments will continue to grow at healthy rates in 2008 and contract 5% to 7% in 2009 and 2010.

MHEM Consumption grew 5.3% in 2007. MHIA forecasts that Consumption or Domestic Demand (shipment plus imports less exports) will grow slightly in 2008 and contract 2009. Exports grew 23% in 2007 and are forecasted to grow 18% in 2008 and slow modestly in 2009.

Modern will host a mid-year economic outlook Webcast on Aug. 28.We’ll look at how the economy will be shaped by mergers and acquisitions, new construction and developments in key markets.

Tom Andel is editor-in-chief on Modern Materials Handling, LM’s sister publication.