The 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.
By Jason Schenker