MHI Solutions - Volume 4, Issue 2 - (Page 109)

ECONOMIC MARkET ANALYSIS Slowdown in U.S. Manufacturing, Material Handling, and the U.S. Economy BY JASON SCHENkER, CFP®, ERP®, CVA®, PRESTIGE ECONOMICS, LLC T he outlook for U.S. economic growth and material handling for 2016 and 2017 has softened sharply in recent quarters. U.S. manufacturing activity fell to recession levels when it began contracting at the end of 2015, which can be seen in the yearover-year rate of industrial production and the ISM Manufacturing Index (see graph on page 110). Although U.S. manufacturing has been contracting, the U.S. service sector has been more robust, which should be modestly supportive of U.S. growth and jobs through the middle of 2016. However, the second half of 2016 is likely to be more challenging, as the risks of flat GDP growth or contraction have risen significantly, especially since even the pace of year-over-year growth in retail sales excluding auto sales slowed to recessionary levels in 2015. These macroeconomic developments are critical for material handling. After all, material handling is a largely procyclical industry, which means that material handling growth moves with economic growth, but often in a more exaggerated way. In other words, a slowdown in manufacturing and the overall U.S. economy is likely to have a disproportionally larger impact on material handling. This is why we expect a contraction in material handling new orders and domestic demand in 2016 and 2017. in the immediate term, the window for the Fed to tighten monetary policy is almost closed. In fact, the Fed is likely to rate cuts and quantitative easing could come in 2017 or 2018, if the U.S. economy slows further. We also expect high foreign exchange rate volatility as the U.S. economy slows and slides toward a full recession later this year and next year. We do not expect the next U.S. recession will be another Great Recession, but we do believe that another recession is coming. highly accommodative throughout most of 2016. Looking to the end of the year and 2017, however, foreign central banks are likely to be evaluating tightening their monetary policies. This could greatly affect foreign exchange rates by supporting foreign currencies against the greenback, since foreign monetary policy tightening could also coincide with a weakening U.S. economy, weighing on the greenback in the second half of 2016 and in 2017. Global monetary policy and currency We expect a modest pace of global growth for 2016, although the outlook for the global economy has softened significantly in recent quarters. On the upside for the global economy, we expect continued improvements in Eurozone growth, as well as some modest improvements in Chinese manufacturing activity. Plus, we expect most foreign central banks will remain Industrial metals prices and oil prices The collapse in global commodity prices has been largely driven by an ongoing Chinese manufacturing recession. When Chinese manufacturing began contracting in late 2014, it created significant downward pressure on industrial metals prices and oil prices, which has persisted. In light of our expectations of modest Chinese and European manufacturing improvements in coming U.S. growth expectations and the Fed The U.S. unemployment rate is likely to rise by the end of the year and in 2017, as the slowdown in manufacturing results in contagion to the service sector of the economy and the entire U.S. economy experiences a slowdown and contraction. Although the Fed could still raise rates to fight off core inflation * MHI SolutIonS 109

Table of Contents for the Digital Edition of MHI Solutions - Volume 4, Issue 2

CEO Update
Emerging Technologies Produce Business Benefits and Talent Challenges
Developing a Talent Management Strategy
Collaborating with Education
Love your Supply Chain Career?
The Power of Mentoring
Eleven Ways to Diversify the Supply Chain: Insights from the Field
How Do You Build A Successful Career in Supply Chain?
Donated Equipment Gives High School, Community College Students Hands-On Experience
Industry Focus: Retail
MODEX 2016
2016 MHI Innovation Award to be Presented at MODEX 2016
Industry Trends
Economic Market Analysis
The Jobs, Wages, Output and Taxes of the Supply Chain
Safer Handling
Solutions Group Update
Fulfillment Update
Solutions Spotlight
Scholarship Winners: Where Are They Now?
MHI News
Index of Advertisers

MHI Solutions - Volume 4, Issue 2