IHEA Monthly Economic Report: Continued Climb and Steady Improvement

August 31, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

"There is one positive aspect when it comes to a dramatic drop as experienced in March and April of this year. When one has fallen that far there is nowhere to go but up! Since then there has been a steady improvement in almost every category." When one considers the challenging year 2020 has been thus far, and the dramatic hit the U.S. economy has taken due to the pandemic, this encouraging opening from the Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary for the month of July is the bolstering news we all need to hear.

The report states, "The progress that has been made thus far has been contingent on several factors. The first is that many businesses have engaged in rebuilding their inventories in anticipation of an eventual economic recovery...hopes lie in a rebound by the fourth quarter. The second major motivator for recovery has been the willingness of the consumer to return to old habits as far as consumption. This has been a mixed experience as there has been some return to those old habits, but there have also been many new habits formed and these have all had their impact on business."

An uptick is evidenced in all but one of the measures and "even this showed only a very slight decline from the month prior." The summary also reports that "Of the twelve index readings tracked, all but one trended positively and in some cases the numbers registered this month were better than they have been in over a year."

The numbers have not been this high in well over a year and suggests that there is considerable optimism for the future. (Photo source: IHEA)

The summary shared, "The more interesting data was found in those categories that seemed to have fully recovered and even exceeded levels seen earlier this year and at the end of 2019. The New Orders Index from the Purchasing Managers’ Index was back to the 60s and that is a level that has not been seen in over a year. Given that the new orders sub-index is the forward looking part of the overall PMI, it bodes well for the recovery at the end of the year." Other areas that showed a jump was in transportation that always "provides some confidence about the future," the parcel delivery sector (not those tied to imports or exports, however), and the metals market, especially copper and aluminum. Lastly, "The production indicators such as durable goods and factory orders have shown progress as business tries to rebuild inventory levels but there is ongoing concern regarding new demand."

The price of metal commodities have been rising. (Photo source: IHEA)

Of those indices that trended positively, "the majority remain distant from the readings that dominated at the start of last year." However, the data shows "a solid recovery in many areas." Albeit, it will take time before you can describe it as robust.

Steel consumption was the only reading that did not trend upward, however, it still was stable and looked similar to the previous few months.

The summary concludes, "The bottom line is that there is resilience in the economy despite the trials of the last few months. It now all depends on whether the pandemic necessitates a wider crackdown and a resumption of the conditions that collapsed the economy in the first place."

The report is available to IHEA member companies. For membership information, and a full copy of the 12-page report, contact Anne Goyer, Executive Director of the Industrial Heating Equipment Association (IHEA). Email Anne by clicking here.

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IHEA Monthly Economic Report: Robust Growth and Significant Gains

July 27, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

"It may not be time to start dancing in the streets, but the news this month is certainly a stark contrast from what it was last month." This note of encouragement begins the Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary for the month of June 2020. The report continues, "Of the eleven indicators we watch, there were nine trending in a positive direction and not by a narrow margin. This was robust growth and significant gains."

The common theme among the nine indices reporting a positive trending was that "The lockdown was lifted and business was allowed to resume. The expectation was near universal and proved to be accurate. The vast majority of businesses promptly reopened to the degree they were able and that varied with the sector. The majority of the manufacturing community was able to resume operations with minimal adjustment."

The recovery in automobile sales is impressive, but it will take awhile to offset the decline of the last few months. The summary explains how vital the health of the auto sector is to the overall economy: "It is hard to overestimate the importance of the overall auto sector to the health of the greater economy. It is not just the thousands of jobs in the assembly plants but the tens of thousands of jobs in the companies that supply the parts and assemblies. Not to mention the jobs in the dealerships, the service operations, the people in the insurance and financing communities, the marketing people and the guys that work the car wash. It is a massive economic engine and that is what led to the old phrase 'What’s good for GM is good for the nation.'"

The recovery in vehicle sales has been impressive.

The Purchasing Managers' Index also reflected significant gains. Last month it dropped to the 30s, which is the lowest it had been since its inception. The rebound was expected as the lockdown restrictions were loosened, however, it was much stronger than anticipated. The report explains, "The fact that this is coming from the more future oriented part of the index is also encouraging. This indicates there is more confidence in the future as the assumption is that there will be a further return to normal business operations. It is also an indication that new orders have been arriving in a variety of sectors as almost all of the measured categories saw an improvement. The notable exceptions have been aerospace and sectors tied to hospitality and travel in general."

The Purchasing Managers’ Index jumped back into positive territory in a big way.

The two negative readings were in capital investment and steel consumption. The summary cites, "The desire to invest in either new machinery or expansion is still very low as the future of the rebound remains in question. Most companies have been working off their inventory and have not needed to add anything – there is still plenty of slack. The investment outlook remains cautious. Steel consumption remains down as there has been a collapse in public sector activity and the commercial construction sector has not figured out demand as [of] yet. The vehicle sector is growing again, but carmakers are still working off their old inventory."

Reminding readers that the readings are still worse than they were before the pandemic and lockdown caused the economy to tumble, the summary states, "But the fact that a reversal has begun promises some continued expansion." A caution is offered, however, because "the economy remains in uncharted territory" due to the fact that this hasn't been a "normal recession."

Bottom line: There is hope. We'll take it.

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IHEA Monthly Economic Report: Don’t Be Faint of Heart; Rebound Coming

July 1, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

The latest Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary begins, “The lockdown recession has been with us for over three months now, and there are few that have not experienced the impact.” How true are those words. But, be encouraged, “By most accounts this will be the bottom, and future reports will start to show slow improvement . . . there have been consistent assertions that economic growth will rebound by the third and fourth quarter.” Some may doubt the optimism, however, “there are some indications that such a forecast may be realistic.”

The indices share a consistent theme in that all show a decline “that are nearly a straight line down.” Yet, there is one notable exception: the data for the Credit Managers’ Index reveals the same severe decline, but with an upward trend at the end. The summary explains, “The index is divided into favorable and unfavorable categories from the perspective of a credit manager. The favorables include categories such as ‘sales,’ ‘applications for credit,’ ‘dollar collections’ and ‘amount of credit extended’. The unfavorables include ‘rejections of credit applications,’ ‘accounts out for collection,’ ‘disputes,’ ‘slow pays’ and ‘bankruptcies’.”

The decline that was evident in March and April was due “almost entirely to the collapse in the favorable data.” But in May, they improved substantially. Interestingly and optimistically, “Credit managers tend to think in the future as they are most concerned with what shape a debtor will be in when they are due to pay. If a company has 90 or 120 or 180 days to pay the credit manager is not going to worry about them until that time. The fact that they are getting a bit more confident now indicates that they are starting to see some positive developments down the road and not all that far away.”

The upward trend in the Credit Movement shows positive progression down the road in the not too distant future.

The other indices share a woeful tale with record setting declines. The report explains, “There is no mystery at all as to why this is the case as the lockdown was universal and sudden. There was no time at all for business or the consumer to prepare, and there have been very few options available since the declaration.” However, the U.S. Labor Department released the latest job numbers and there were expectations that the unemployment number would hit 20%, but in reality the number was 13.4%.

So, where does the economy go from here? The summary cites three factors that will come into play: First, the attitude of the consumer — “If there is to be a real rebound the consumer will have to want to resume their old behaviors and soon.” Second, the action of the government — “[This] has varied from state to state. Some have been eager to reopen and others have put off this resumption until into 2021.” Third, the course of the viral infection — this will drive the first two factors.

Buckle up, folks, the wild adventure continues!

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IHEA Monthly Economic Report: Don’t Be Discouraged, Better Days Ahead, but Resilience Needed

June 4, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

The changes and current events occurring in our cities, states, country, and around the world are causing our heads to spin and our equilibriums to stagger. While information from the latest Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary will come as no surprise for many, an unexpected, yet welcome projection will be sure to bring hope and encouragement to our weary spirits.

The report begins by explaining the incredible speed, fluidity, and “real time” fluctuations of information. “The data stream that informs the assessments we review each month has been affected right along with everything else in the economy. The changes have been taking place at a bewildering pace, outdated almost as soon as the data is collected.” Hence, because these numbers are so organic, “This set of numbers and graphs are only as accurate as they were a week or so [ago], and by now, they have all changed in significant ways.”

Despite the data pointing downward, almost universally, there are two of the twelve sectors assessed that have shown growth — steel consumption and capital investment. The summary states, “Steel consumption should be down given all the problems outlined in manufacturing and construction. There has been very little traditional demand for steel and that would lead one to expect deteriorating consumption. The slight uptick suggests that some users of steel are preparing for a return to higher prices down the road when there is an economic recovery and thus, they are trying to buy now while prices are low.”

Sectors buying steel now and storing it until they see their own demand start to recover.

The motivation behind the gain in the capital investment index has been similar to that of steel consumption. “Now is the time to invest in new equipment or even expanded facilities as the prices are very low and there is some willingness to deal. This is a pattern that is nearly always seen during recessions . . .”

In a recession, acquisition of capital goods and physically expanding facilities occurs.

As to the rest of the numbers, the report says, “The first and most important is that this is an artificial recession imposed by a lockdown strategy intended to address another issue. In the simplest of terms, the economic crisis is collateral damage in the war on the COVID 19 outbreak.”

But, as we conclude, there is optimism as we get a glimpse of, in the words of Paul Harvey, “the rest of the story.”

“There is a surprisingly level of confidence as far as the future is concerned. The analysts that have been looking at the expected progress of the economy, as well as the virus, still contend that we are in the midst of a “V” recession – one that falls very quickly but rebounds just as fast. The assertion is that there is enough pent up demand to drive consumer behavior, and this will encourage business to respond quickly, and that will mean they will bring the majority of their workforce back from their “furlough,” and that will encourage even more consumer activity. . . It all becomes a matter of timing and the resilience of the consumer.”

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IHEA Monthly Economic Report: No Surprises Here

April 29, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS, MANUFACTURING HEAT TREAT NEWS

“It is the time to dare and endure.” Winston Churchill made that statement in 1940, and it is apropos today, as hopefully, many of us are coming to the end of the “stay at home” quarantine and will soon be free to roam again. It has also been said that it is during particularly difficult times where possibilities are mined and take flight. We will need those encouraging words in the days, months, and perhaps years ahead as evidenced in the latest Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary. The report states, “This may well be the most distressing assessment of the U.S. (and global economy) since the recession of 2008. None of the bad news that follows will come as any surprise to anyone as we are all quite aware of the damage that has been caused by the reaction to the COVID 19 pandemic.”

The report explains the difference between the 2008-09 recession and that of 2020 – the current recession is an artificial one created by the forced shutdown of the economy. The U.S. enjoyed a robust economy and healthy job numbers at the beginning of the year. “The potential silver lining to all of this is that government … can reverse the process. The day that lockdowns are declared at an end, there will be recovery. Consumers will consume again, employers will hire again, producers will produce again. How much and how fast will be the prime questions.”

In the meantime, however, “Of the twelve indicators followed in this index, there are only four that are still trending in a positive direction and they will not be holding that distinction for long.” The durable goods numbers and factory orders numbers rose a little, but this only indicates there has been a delay in terms of industry response. The activity in the durable goods category is a lagging indicator. There has not yet been enough time for the reduction in activity to manifest in the numbers, i.e., airlines, heavy construction equipment, oil field machinery, farm equipment which have all taken major hits in decline.

Durable goods tracked a bit higher this month, however, be aware that its activity is a lagging indicator.

The summary continues, “The improvement in the transportation numbers may be a bit more realistic. There has been high demand in the parcel sector as everybody has been ordering things delivered.” The other sectors in transportation have not fared as well like ocean cargo, air freight, and the rail sector.

The transportation sector is showing some positive development.

The only other area that experienced a gain was in capacity utilization, “but that will shift as there is now considerably more slack in the system than was the case earlier.” Normally these numbers would reflect the pushes and pulls of supply and demand, but that process has been interrupted … and now almost every business has an overcapacity concern.

We are all living in a “waiting” mode anticipating the “all clear” proclamation. Then, as the summary report concludes, “Once some measure of control is achieved, the economy will be restarted, and then the focus will be on the speed of recovery.”

The report is available to IHEA member companies. For membership information and a full copy of the 12-page report, contact Anne Goyer, Executive Director of the Industrial Heating Equipment Association (IHEA). Email Anne by clicking here.

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IHEA’s Monthly Report: The Good Old Days

April 1, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS, MANUFACTURING HEAT TREAT

Automotive sales have been stable, which means the whole sector has been stable (Click image to enlarge)

February’s Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary suggests, “The numbers revealed in this month’s index will someday be remembered as the ‘good old days.’ This will be the last version that can be termed “PCV” or pre-corona virus.” The report continues, “It will be important to look back on the last couple of months and remember that conditions looked pretty decent at the start of the year.”

The three indices that are trending positive include new automobile and light truck sales which reveal strongly that consumers favor their new vehicles. There was also a nice boost in steel consumption which suggests that there has been more construction activity in the public sector. Additionally, despite the threat, consumers remained active as factory orders were also up slightly.

While eight indices are trending downward, the summary reports, “The semi-good news is that several of the negative readings are only slight in that category.” The biggest declines were seen in “metal prices (and commodities in general) as well as capital expenditure, credit and transportation. The only one that really crashed hard was capital expenditure and that is partly due to the slump in manufacturing that started last year.”

The capacity utilization dip still registers in the high 70s (Click image to enlarge)

A little less dramatic in declines are the housing market, which still remains healthy although new home starts are down; and, capacity utilization, that has been sinking, but “is still not all that far off the pace considered normal.” The durable goods numbers and the data from the Purchasing Managers’ Index also slowed down, but not significantly.

“The next month will show drastic reductions in business activity in many sectors and the job losses will start to mount. The hope on the horizon is that COVID-19 behaves like others of its kind and starts to fade as the weather warms. If the worst of the impact is in March and April the recovery will be obvious by June and July.” states the report.

It is an uncertain time for everyone, and we can all resonate with this concluding thought, “It is hard to say what these numbers tell us. This is uncharted territory for the US.”

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IHEA’s Monthly Report: The US Economy Hits the Ground Running into 2020

March 2, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

“Optimism” may be a good description to highlight January’s Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary. It states, “The US economy has started the year in better shape than had been expected. Now the attention of the economist has been focused on two questions. The first, why the headwinds that were expected to slow things down haven’t? And the second, how long can this situation be expected to last? Despite the predictions that consumers would become weary and businesses would begin layoffs at the start of 2020, “… some of the pressure was released with the ‘phase one’ deal with China and the consumer just seemed to power through their concerns.”

New home starts experienced an unexpected and encouraging rebound

The summary reports, “In looking at the index readings this month, the news is pretty good. Of the eleven, there are seven that are trending positive and four that are pointing in a more negative direction. The more important note is that the good news readings are very strong and the negative readings are not so dramatic.”

Of the seven positives indices, new housing starts experienced a dramatic rebound, and the housing sector is as strong as it has been in some time. Additionally, the reports states, “There was also some significant gain in terms of steel consumption. The automotive sector and the energy sector have helped boost demand.”

Significant growth in new orders after 5 consecutive months in decline

One other significant area of growth to note is the PMI, “There was a very impressive rebound as far as the Purchasing Managers’ Index was concerned. The overall index jumped back into expansion territory with a reading of 50.9 but an even bigger leap was noted in the New Orders index as it went from 46.8 to 52.0. Given the future orientation of the new orders data, this is good news indeed.” Other indices showing a positive growth were capital expenditures, durable goods, factory orders, and the credit manager’s index.

Those indices that weren’t as upward trending, but not “all that depressing” were new automobile/light truck sales, falling metal commodities prices due to lack of demand, and capacity utilization. The transportation index seems to be more of a concern, “The slip has been mostly in the rail and maritime sectors thus far as both have been affected by the trade wars and other interruptions in the global economy. The bottom line is that the bad news data has not been all that serious and most are likely to see some improvement in the future if the good news data keeps coming in.”

In conclusion, the news is better than expected this month with much growth. However, we can’t ignore the coronavirus and that its effect on the global economy has yet to play out completely.

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IHEA’s Monthly Report: The Close of 2019 Brings Good Tidings of Solid Job Growth and Low Unemployment

January 29, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

“There is a good bit of optimism regarding the 2020 economy,” this month’s Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary begins. “The unemployment rate is still very low and there have been several months of solid job growth. The expected growth rate for the year remains close to 2.0%.”

The five index readings that are moving in a positive direction include new automobile/light truck sales, new home starts, industrial capacity utilization, metal pricing, credit movement as measured by the Credit Managers’ Index and the Transportation Activity Index. The report continues, “The latter two readings have a history of being ‘canaries in the coal mine’ as they react quickly to changes in economic momentum and tend to point the way for the rest of the economy later.” However, the power of the consumer is key to growth as the summary states, “The common factor, as far as growth, is anticipation of a decent short-term trend and the existence of confidence within the ranks of the consumer.”

The report also conveys that with the good news, there is some concern for what to expect later in 2020. The six indices that have trended in a more negative direction include steel consumption, the new orders index from the Purchasing Managers’ Index, industrial capacity utilization, capital expenditures, durable goods and factory goods. The summary reports, “The negative activity is almost entirely focused on production decisions.”

It appears as if Americans are feeling confident as they bring in 2020, “The consumer is still in a good mood and has yet to start worrying about the possibility of layoffs or the arrival of inflation. That translates into wishing to buy cars and homes and these indicators are therefore trending up a little.” However, as the reports concludes, it is an election year and, “Election years always create uncertainty.”

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IHEA Monthly Economic Summary: Low Unemployment Rate & Confident Consumers Lead the Way

January 2, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

In this month’s IHEA Executive Economic Summary, the indices show “the unemployment rate is very low. . . and the consumer remains in a good mood.”

Consumers show confidence as evidence of New Auto/Lt Truck Sales.

Of the eleven targeted index readings, seven are pointing in an optimistic direction. The most positive numbers are coming from new automobile/light truck sales, new home starts, steel consumption and credit movement. The report states, “The three areas that stimulate steel consumption are vehicle manufacturing, construction, and to a lesser extent, durable goods and appliances. All three of these sectors have shown some signs of growth in the last month with commercial construction leading the way.”

The other three positive indices in that category are metal prices, capital expenditures, and factory orders. The summary reports, “The rate of factory orders has tapered off a bit, but the levels have remained more or less stable.” The trade wars may spur some reactions, too. “The restrictions on trade with China has altered supply chains as other nations step up to supply, but there has also been some additional purchasing from US factories.”

The rate of factory orders has tapered off slightly, but the levels have remained stable.

The concerning news is that these three are barely moving in an upward direction. Of the four that are trending in a negative direction, capacity utilization, new orders (PMI), durable goods orders, and transportation activity, the slump is pronounced. “This is the kind of data that encourages that sense of caution and trepidation.”

As the IHEA Economic Summary reports, “There is a little something under the tree for both the optimist and the pessimist.”

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IHEA’s Monthly Report: Index Readings “Only Slightly Down”, Still Good Signs for Months Ahead

November 27, 2019 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

PMI turned upward in October. — New orders turned upwards following several months of downward motion.

What impact does the coming political election have on the 2020 economy? As this month’s IHEA Executive Economic Summary reports, “Election years tend to depress consumers, business people and investors alike. The two parties try to outdo one another with tales of gloom and doom unless you vote for them and the sense is that the world is teetering on the brink.”

That being said, the report also encourages optimism when it states, “It should be noted that many of the index readings that turned negative are only slightly down and many are still higher than they have been much of the year.”

Metal prices, new orders and recorded in the PMI, capital expenditures, and the transportation index all trended upward in October. According to the report, the fact that the PMI has started to trend upward, even though it is still below 50, is a good sign for the months ahead.

Regarding capital expenditures, the report states, “The capital expenditures numbers are better than expected given the data on capacity utilization, but it seems there is still a demand for replacement equipment even if there is less demand for new equipment to support growth.”

Industrial capacity utilization contined to slide in October. — Industrial capacity utilization continued to slide in October adding to worries about a potential recession.

With regard to the seven downward trending indices, the report states that “they are not all that bad.” Indices in this group include new automobile and light truck sales, new home starts, steel consumption, and industrial capacity utilization to name a few.

Concluding the report is the following statement, “These have not been massive drops and there is no sense of an impending crisis, but this kind of weakness doesn’t leave much wiggle room should there be a real recessionary trend. The overall sense of trepidation in the industrial sector is driving most of the current level of angst.”

For a full copy of the 12-page report, contact Anne Goyer, Executive Director of the Industrial Heating Equipment Association (IHEA). Email Anne by clicking here.

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Anne Goyer