IHEA Monthly Economic Report: “Who’s on First?”

October 28, 2020 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

Do you remember, or have you ever heard of the comedy duo of Abbot and Costello of the 1940s and early 1950s? One of their most popular skits is “Who’s on First?” which is hilarious, but its title, theme, and overall performance are apt reflections of the questions, frustrations, and confusing answers we are experiencing on a daily basis as we continue to navigate through uncharted waters. September’s Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary begins with questions we’d all like to know the answers to about the future of the economy/recovery and ends with continued hope. “There will soon be a debate as to what to call the period we are entering. Is this the post-pandemic recovery? Is it the second wave pandemic era? Is this the beginning of the ‘blue wave’ or the start of the purple revenge? Is this the end of the beginning or the beginning of the end? At this point a case could be made for any of these.”

It’s always good to look at the data of the indices to get a pulse of what’s happening. Of the 11 indices, five are trending in the positive direction and six are trending negative, however, the report states that “the shifts have been subtle and it is hard to say whether the future trends will continue to follow the current pattern.”

The report continues, “In many respects the economy now seems in better shape than it was just a few months ago and far better than many had expected at this point. That is reflected in the indicators that showed improvement this month.” The gains were in the new automobile/light truck sales, steel consumption, industrial capacity utilization, metal prices, and factory orders.

Vehicle sales are sensitive to the performance of the economy. Demand is slowly coming back.

New home starts, capital expenditure, PMI new orders, credit, durable goods and transportation experienced a decline last month, however, in “many of these readings the changes from last month were minor and the numbers remain far stronger than they were even as recently as July and August. The economy is changing and that has meant decline for some and progress for others.”

The level of steel consumption has been rising steadily since falling into the doldrums.

While the upcoming election may bring changes, the summary states, “The reality is that the focus of the next year will be the same regardless of who wins the White House and/or Congress. The pandemic may dominate the economy as it has through 2020.” The projections for 2021 fall into two categories. The first scenario is one in which “the recovery will start picking up speed as this year ends and will continue to gain traction into the first half of next year before slowing down slightly.” The second scenario is the more cautious assumption based on an expected spread of the virus through the colder months. The good news is that in both scenarios the end of 2021 will see growth numbers that will look a lot like the numbers at the start of 2020.

Finally, given all the uncertainty, what should be on the watch list for business and manufacturers specifically? The summary concludes, “The key factors to watch will be those that reflect month to month changes and that will include the Purchasing Managers’ Index as well as the Credit Managers’ Index. Both look pretty solid right now but have shown some signs of concern as the growth spurt in the PMI has faded and the CMI is starting to show issues with the unfavorable factors. Two other indices to focus on will be capital expenditure and capacity utilization. If the manufacturers are worried about the future, they will be reducing their levels of capital investment (both in terms of machine purchasing as well as physical plant).” The only other early warning sign to look for is in transportation. Parcel activity is going to grow as the holiday spending season ramps up, which means paying closer attention to rail and truck volumes.

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 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: 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 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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Heat Treat Economy Continues Strong per IHEA Executive Economic Summary

May 31, 2019 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

The monthly economic report from the Industrial Heating Equipment Association (IHEA) showed continued signs of optimism for the heat treat economy. This month, like last month, the 11 indices reported on by the organization were mixed; five were up and six were modestly down.

Capital expenditures were up significantly in April.

Among those headed north were a triumvirate of manufacturing indices: capital expenditures, durable goods shipments, and factory orders. Industrial capacity utilization was slightly off but still higher than it was one year ago.

Other strong indices were home starts and steel consumption.

On the down side of the equation, new orders (PMI) dipped significantly as did the Credit Manager’s Index. The transportation index also dipped slightly.

In the full, twelve-page report, IHEA Economist, Chris Kuehl, goes into depth on each of the eleven indices explaining their potential impact on the heat treat industry and the causes for their upward or downward motion.

IHEA member companies receive the report free of charge each month as a benefit of membership.

The PMI, which measures new order activity, saw a significant dip in April.

To view the latest IHEA Executive Economic Summary, contact IHEA Executive Director, Anne Goyer by clicking here.

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Heat Treat Economic Report Continues Strong

February 28, 2019 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

Nine of eleven economic indicators from the monthly Industrial Heating Equipment Association (IHEA) were up in January. That miffed some who thought the industry was starting to soften. In fact, it is not conclusive one way or the other, but January’s numbers showed strength and surprisingly strong upward movements from a vast majority of the indices.

Graph of Capital Expenditures — Capital Expenditures for January were up significantly

Graph of Durable Goods orders. — Durable Goods orders were strong in January

The numbers, which we will dive a bit deeper into below, are provided monthly to members of the IHEA along with a 12-page report that digs into each index and how movement in that index will specifically impact the thermal processing industry. Anyone interested in receiving the report should contact Anne Goyer, Executive Director of IHEA, whose contact information is given at the end of this post.

Which indices were up? As mentioned earlier, nearly all of them.

New Home Starts took a significant jump.
Steel Consumption was up significantly.
Industrial Capacity Utilization was also up from the previous month.
Metal prices (aluminum, gold, nickel, copper) were also up.
The PMI was up significantly.
Capital Expenditures took a huge jump upward.
Durable Goods saw modest growth.
Factory orders rebounded from a previous month’s dip.
Transportation Index experienced a nice rebound after falling for several months.

The only two indices that did not improve were:

New Automobile and Light Truck Sales were essentially flat falling only slightly.
Credit Movement was significantly down

According to the IHEA report, this downward movement in the credit index causes one to pause and question whether 2019 will be as robust as 2018.

Further analysis of each of these 11 indices can be obtained from Anne Goyer, Executive Director at IHEA, who can be reached at anne@goyermgt.com.

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IHEA Executive Economic Summary