IHEA Monthly Economic Report: Be Careful What You Wish For

May 24, 2021 / Uncategorized

We are living in a volatile and ever-changing world right now— on many fronts. And so, when April's Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary begins, "Be careful what you wish for – you just might get it," it causes one to pause. There have been areas of growth during the early months of 2021, but as the report states, "With growth come the challenges of growth. . ."

The demand for steel has been spiking and as a result the prices have been trending up as well. (Data courtesy of IHEA)

"Everything in this month’s report points to further growth and that is good except when it isn’t," the summary continues. What can challenge economic growth? Inflation and the three planks of inflation are commodity price hikes, wage hikes, and overall increase in money supply. Because of the growth, "the inflation threats are here to stay for a while." While the time frame isn't known, the two drivers that will contribute to its longevity or brevity are demand and supply. The report explains, "The demand side is pushing inflation for the moment – there is too much for the producers to keep pace with. The suppliers were not ready for this level of demand and remain a little cautious as far as how long that demand holds." It appears that the demand is real and that production will ramp up to meet the demand.

The one potential sticky point may be the money supply driver for inflation mentioned earlier. The economic report continues, "In normal circumstances there is a limit to inflation tolerance that stems from the willingness and ability to pay the higher prices." So, either the consumer has the means to pay the higher price or he deems it too high and will forgo the purchase. But today, with "close to $5.5 trillion in excess savings worldwide. . . the consumer will complain about the higher price, but then they will shrug their collective shoulders and pay anyway because they want the good or service offered and they have the money to pay for it. Those that will be left behind will be those that don’t have the money set aside or lack the ability to increase their personal money supply – the fixed income consumer and the company that is locked into their current pricing structure."

Copper, steel, aluminum and nearly everything else has seen sharp hikes to near record levels. The main reason for the price surge has been demand in excess of what had been predicted coupled with producers remaining on the cautious side. (Data courtesy of IHEA)

The report concludes with the expectation, barring no unexpected crisis, that "inflation pressures will ease by the end of the summer or early fall as the producers catch up with demand. This is the season of hurricanes and storms capable of creating issues that cascade through the markets and there is more fragility in the system than has normally been the case."

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: What Is Our Future? The V, the Swoosh, or the W?

January 4, 2021 / Uncategorized

Stay buckled up, folks! The often-mercurial economic adventure continues. November’s Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary addresses the crossroad and the economic forecasts that are trending. The summary begins, “The economy seems to be sitting at another crossroads, and thus far this year there have certainly been many of them. There are basically three forecasts in circulation as far as the coming year is concerned.”

The pandemic shutdown did not affect the construction sector in a significant way, and in many respects, it accelerated demand for homes.

The report defines the three outlooks — the “V,” the “swoosh,” and the “W”– and analyzes which model seems most realistic right now based on real time data, although we know that can change at any moment. The preferred “V”outlook “holds that there will be a rapid rebound in the next quarter or two and this will yield a rebound nearly as quick as the decline. To be honest, the time for the ‘V’ option has largely passed by. We would have had to see some truly dramatic numbers appear by now.”

So, if the “V” is an unlikely option, the summary states the “swoosh” might be the best option: “It asserts that there will be continued real growth in the first quarter of 2021 but tempered a little by continued consumer trepidation and the impact of the continued shutdown. This means that there is not a rapid rebound, but a drawn-out version that starts to look real by the start of Q2.”

The report continues, “The remaining option is the ‘W’ or the double dip recession and that is nobody’s preference. This would be the result of another hard and comprehensive lockdown. It is not likely the entire country would be subject to such a shutdown, but certain states will be affected more than others.”

There is growth, however. As we look specifically at the November indices, all but three of the eleven measured are trending in a positive direction. The summary states, “There are several near universal factors that are driving all of the index readings at this point. The first is a growing level of confidence regarding the performance of the economy in 2021. . . . The second factor stems from the first. That surge of activity will strain capacity in many sectors. . . . and the third is the state of the global economy.”

The major users of steel include construction, vehicle manufacturing, and the oil and gas sector.

Stayed tuned! The end of 2020 and beginning of 2021 promises to be full of excitement.

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

October 28, 2020 / Uncategorized

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: Remarkable Recovery- Consumers Remain Cautiously Optimistic

September 28, 2020 / Uncategorized

Growth takes time, but celebrating the small steps and progress is good for the heart and soul– of people and country. “There has been a remarkable level of economic turnaround taking place in the last couple of months. Of the eleven indicators we watch there has been a recovery in every one of them,” so begins August’s Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary.

Yes, the gains have come off record losses and numbers haven’t climbed back to where they were at the beginning of the year, however, as the report conveys, “Given the data that was showing up just a few months ago, the situation now could be far worse at this point and if there is a continuation of these recent trends there could be a recovery of that first quarter momentum by the beginning of the fourth quarter.

The report asks this question: With every index reading trending positive there is not much to contrast so the key issue is why. What is the prime motivation for the comeback and where might the weak points be?” Three factors are suggested for the gains. The first is the elements of the lockdown have been lifted. “Where there has been a relaxation of the restrictions, there has been economic growth.” The second reason for the economic growth is a resumption of consumer demand. “It was hoped that consumers would be eager to resume their old habits but there was no guarantee, and there was some hesitation as far as consumption was concerned. That largely vanished by the middle of the summer.” The third growth factor was the producers’ willingness to meet the recovering demand. “Production levels have been increasing through the last few months and there has been little indication that activity was being slowed deliberately as a means by which to boost prices through manufactured shortages.”

What is a potential weak area that could adversely affect the economy? The short answer– the election. “Perhaps the most potent unknown surrounds the election. There is always a concern when the possibility exists for a change in leadership. That concern ramps up when there is more at stake than just the White House. The business community is affected more by [who] holds power in Congress as this is where those fiscal decisions are made.

To highlight just two indices, first, take a look at the New Home Starts where the housing market “is booming in almost every respect. The analysis states, “The surge has been seen primarily in the single-family home category as there has been an exodus of people from urban areas to the suburbs and exurbs.” Why? Because due to the lockdown restrictions, people are tired of cramped living conditions, and many are craving more space in the suburbs. “The majority of the factors that stimulate home buying are trending in a positive direction. Mortgage rates remain at very low levels and lenders are still willing to do these home loans.”

There have been people leaving cities they no longer feel safe living in and perhaps the most salient factor is the desire to end their long commutes. (Source: IHEA)

The second index that highlights a viable and healthy rebound is the Factory Order index. “The gearing up for the holiday season is well underway as the retailers have clearly signaled that they are expecting a very early buying season. They will be entering the period with an ‘inventory light’ strategy and will be turning the entire month into ‘Blackvember’ with early sales and discounts designed to capture the attention of the early shopper.”

The recovery of the factory order segment is perhaps better news than the rebound in durable goods and some of the other industrial indicators as it is coming at an ideal time. The gearing up for the holiday season is well underway… (Source: IHEA)

Resilient has often described Americans throughout our history, and this period in time is no different. Challenges make us stronger, and hopefully, wiser. Here’s looking to a continued growing economy and wisdom in decision-making.

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 / Uncategorized

"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 / Uncategorized

"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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China Exclusion Request Granted

July 13, 2020 / Uncategorized

Recently, the United States imposed a 25% tariff on thousands of products from China, but permitted U.S. companies to request an exclusion from paying tariffs. In this article, Omar Nashashibi, founding partner of The Franklin Partnership, LLC, and a resource of Industrial Heating Equipment Association (IHEA), explains the latest news regarding the exclusion and its relevance to structural components for industrial furnaces.

Omar Nashashibi,
Founding Partner,
The Franklin Partnership, LLC

The United States Trade Representative (USTR) has extended an exclusion for importers from paying a 25% tariff on industrial furnace components from China. The exclusion to the China Section 301 tariffs for structural components for industrial furnaces was extended in the Federal Register notice published on July 9, 2020 (85 FR 41267). The exclusion to the 25% tariffs, originally granted in July 2019 and set to expire on June 9, 2020, is now extended through December 31, 2020. The extension of the exclusion to industrial furnace components is one of twelve announced by USTR. Nearly 100 other products, including furnace casings, will see their tariff exclusions expire.

In July 2018, the United States imposed 25% tariffs on $34 billion worth of products imported from China (List 1). Of importance to the industrial heating industry, included in List 1 were parts of industrial electric furnaces and ovens as well as industrial induction or dielectric heating equipment (HTS 8514.90.80).

With this extension, all products meeting the description of “structural components for industrial furnaces” and are classified under the HTS code 8514.90.8000, will continue to be excluded from the 25% tariff. To claim the extended exclusion, importers must report the regular HTS code for the product, as well as the exclusion HTS code: 9903.88.52.

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

July 1, 2020 / Uncategorized

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 / Uncategorized

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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New Additions to the 2020-2021 IHEA Board of Directors and Officers

April 29, 2020 / Uncategorized

Scott Bishop, incoming president of IHEA (source: IHEA)

Jeff Valuck, incoming VP of IHEA (source: IHEA)

The Industrial Heating Equipment Association (IHEA) recently announced its 2020 – 2021 Board of Directors and Executive Officers. The new executive officers are Scott Bishop of Alabama Power Company as president, Jeff Valuck of Surface Combustion as vice president, and Brian Kelly of Honeywell Thermal Solutions as treasurer. Outgoing president Michael Stowe of Advanced Energy assumes the role of president emeritus.

Brian Kelly, incoming treasurer for IHEA (source: IHEA)

IHEA also welcomes new board member Alberto Cantu of Nutec Bickley. Alberto has been involved with IHEA since 2011 and participates on the Safety Standards and Codes Committee.

Alberto Cantu, incoming board member of IHEA (source: IHEA)

IHEA President Scott Bishop, who is highly involved in IHEA’s Infrared Division, says, “It is an honor to serve as IHEA’s president for the 2020-2021 term. I look forward to continuing the great work IHEA has done for more than 90 years. Also, during this unprecedented time I would like to encourage our members to be proactive in finding ways to better serve our industry and make an impact.” Bishop has served as IRED chairman, presented at numerous workshops and seminars, and provided key support in the recent revision of the Infrared Process Heating Handbook for Industrial Applications.

Michael Stowe, outgoing president of IHEA (source: IHEA)

“I am very excited about this new role,” Cantu states. “I think it will be a great opportunity to connect with colleagues in the industry and help move it forward,”

New Additions to the 2020-2021 IHEA Board of Directors and Officers Read More »

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