IHEA Monthly Economic Report: The Good. The Bad. The Ugly.

August 30, 2021 / FEATURED NEWS, HEAT TREAT ECONOMIC NEWS

"That sense of euphoria over the rapid growth sustained since the start of the year has started to fade and not for the reason that was expected," states July's Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary. Remember at the beginning of the year, there was an expectation that there would be growth, but it would hopefully be a bit slow. That was preferred because then "producers would be able to keep pace with demand and that would minimize the inflation threat."

As indicated, when looking at the data for capacity utilization, there has been a great deal more investment in equipment, machinery, and technology in the last few months. The swift recovery of the economy convinced many companies they needed to move quickly to meet that surge in demand.

The report explains that "What we actually got was an economy on fire with a 6.5% growth rate in Q2. Suddenly the inflation threat was real as producers were quickly overwhelmed." But, as everyone was preparing for growth, Covid reared its ugly head again. "Now we see potential decline in the last half of the year as those protocols and restrictions reappear. "Will there be another lockdown? Will consumers retreat again and send the service sector back into recession?" Those are vital questions that are begging for answers.

Businesses had two possible responses to the early surge, both based on consumer action: add capacity to meet the demand and trust the surge will continue or hold tight and possibly lose business to competitors. The summary reports, "Until roughly a month ago, it would have been a good bet to assume that demand would continue to grow – all the signs and indicators were pointing that way. Today the story is far less clear. The resumption of pandemic protocols has been an immense disappointment and has created significant tension."

The data from the PMI has been getting progressively better and these are very high numbers in general. (The PMI index indicates expansion when the numbers are above 50 and contraction when they are below 50. The last time the index was even close to that decline was a year ago when the reading was 50.9 and it has been climbing ever since.) The unique aspect of the PMI is that it is current and honest – it is literally a monthly assessment of what industries are buying.

So, where does that leave the U.S. economy for the remainder of the year? There are three scenarios: the good, the bad, and the ugly. The good is one in which "people basically adjust to the protocols with some patience. . . . If that is the case, the expectation is that growth rates will be relatively unaffected." The bad suggests that "consumers do not adapt well and begin to shift their behaviors back to what they were last year – shunning events, restaurants, travel, and other public activity." And the ugly scenario could result if "the outbreak gets bad enough that lockdowns are reimposed."

The report concludes that "consumer growth and tension are not good companions." Time will reveal the consumer's chosen scenario.

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.

IHEA Monthly Economic Report: The Good. The Bad. The Ugly. Read More »

IHEA Monthly Economic Report: Be Careful What You Wish For

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.

Industrial Heating Equipment Association Executive Economic Summary

IHEA Monthly Economic Report: The Good. The Bad. The Ugly.

IHEA Monthly Economic Report: Be Careful What You Wish For

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