HEAT TREAT ECONOMIC NEWS

The monthly Industrial Heating Equipment Association (IHEA) Executive Economic Summary this September reiterates the point that it has been making for several months this year: economic growth plus negative economic indicators equals “I don’t really know” what will happen in the economy.

First, the summary takes time to look at contradicting economic indicators. The first example is in GDP growth: While Q1 and Q2 exhibited persistent negative GDP growth, Q3 projections of 1.3% positive growth is a promising sign that the threat of a recession is starting to fade. Other indicators also show borderline economic stability and possibly growth; with unemployment rates being low and seeing capacity utilization numbers in normal range and the Purchasing Manager’s Index in expansion zone (both just barely), “there are as many factors suggesting recession as there are factors that point towards slow growth but growth, nonetheless.” The economic summary projects the following in this borderline hopeful situation: “My own analysis of the situation (for what it is worth) is that the US will escape a formal recession in 2022 or 2023 but will experience a downturn of some significance as compared to where we were in 2021.”

Second, the summary evaluates the causes for inflation, a hot topic and a very visible, uncomfortable sign. We’re looking at three variables for this assessment: lockdowns, the energy crisis, and reshoring. “The estimate,” relates the economic summary, “is that the lockdowns cost upwards of $10 trillion in lost wages, shuttered business, health care costs and the like. The $800 billion [in U.S. stimulus money] did not offset the economic loss and was therefore not inflationary. There was a surge in inflation in early 2021 as the restrictions started to lift and people started to spend again but most of that pressure had dissipated by Q3. There would have been reduction in inflation pressure had there not been other factors.” The next cause for inflation, the energy crisis, was caused by the War in the Ukraine since Russia’s invasion of the Ukraine effectively cut off the world’s second largest producer of oil from the global economy. The energy crisis and inability to access many goods after shutdowns and wartime supply chain disruptions has also led to much reshoring in the U.S. With reshoring — an indication of growth — comes near inevitable price increases at the expense of more secure supply chain lines: “As companies return to the U.S., they will naturally encounter higher costs – for labor, for land and the like. They will see higher regulatory costs and will encounter more limits. These will add to the costs even as these companies benefit from a more reliable supply chain.”

Check out the full report to see specific index growth and analysis which is available to IHEA member companies. For membership information, and a full copy of the 11-page report, contact Anne Goyer, executive director of the Industrial Heating Equipment Association (IHEA). Email Anne by clicking here.

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Search for heat treat solution providers and suppliers on Heat Treat Buyers Guide.com

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Rather than mirror the doom and gloom projections from the media, this economic report does not project the 1980s to our present situation. The monthly Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary released in May remains proactive, warning against statements of doom and gloom, while recognizing three very real drivers of economic concern: inflation, labor, demand.

“The bottom line is that economists are about as reliable as meteorologists when it comes to predicting,” the report reads. So rather than perpetuate the gloomy forecasts, the report proposes warnings in several “if” statements: “If the inflation doesn’t come down, if the price of energy stays high, if the supply chain remains broken, if labor is in short supply, if the pandemic surges again, if the Ukraine war doesn’t end.” These factors may not change fast or fast enough, but we will cross that bridge when we get there.

The first driver of economic concern is consistent with the report released in March: inflation. Currently, the two reasons can be attributed to war in the Ukraine as sanctions on oil have been placed on the third largest oil producer, and supply chain breakdown due to the pandemic. The latter continues to be exacerbated as China has gone into fierce lockdowns. “The loss of the world’s third largest oil and gas producer,” the report continues, “sent prices spiking and there was a similar reaction when it comes to food as this part of the world produced 25% of the world’s wheat.”

The second driver is also familiar — the need for labor and combatting labor costs. While not unanticipated, the increasing demand for skilled workers indicates that we have not properly prepared for this need. In fact, the report asserts that “[there] has been no concentrated effort to train the needed workforce, no reform of immigration, [and] no move to change the retirement age.” This means that skilled employees have more bargaining power as companies — not workers — compete to meet their need.

Lastly, the driver of economic concern is high consumer demand in a time of shortage. “In a time of shortage, people and businesses hoard, and that only makes the overall situation worse,” reads the report, and even though the “flood of money” offered to people during pandemic recession fueled excessive growth — nearly 6% — the overhang is mostly gone. There is still some remaining, despite inflation, to encourage spending; it is this area of demand that the Federal Reserve can directly affect if it so chooses.

Check out the full report to see specific index growth and analysis which is available to IHEA member companies. For membership information, and a full copy of the 11-page report, contact Anne Goyer, executive director of the Industrial Heating Equipment Association (IHEA). Email Anne by clicking here.

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Search for heat treat solution providers and suppliers on Heat Treat Buyers Guide.com

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