Economic Market Update
Expectations on the Rise for the Economy for 2017 and 2018
Optimism about the U.S. economic outlook increased at the end of 2016, after the U.S. presidential election. Expectations of Reaganesque corporate and individual tax cuts that would be accompanied by FDR-era infrastructure spending sent equities higher—and improved the potential for investment.
While optimism about U.S. growth improved at the end of 2016 and the beginning of 2017, global growth expectations also improved. After spending a year and a half in recession, the Chinese Caixin manufacturing PMI expanded in the second half of 2017, as the U.S. ISM manufacturing index and the Eurozone manufacturing PMI also conveyed expansions.
In January 2017, the IMF reported annual global growth rates of 3.2 percent for 2015 and 3.1 percent for 2016. More optimistically, the International Monetary Fund (IMF) forecast for 2017 global growth is 3.4 percent, with a forecast of 3.6 percent in 2018. However, IMF forecasts are often too high, and they are frequently revised lower.
Expectations for material handling
IMF expectations for global growth are better for 2017 then 2016—with much stronger growth expectations for 2018. Against a backdrop of upside growth potential, we see upside potential overall for material handling new orders in the second half of 2017, with more significant upside potential for 2018.
Material handling remains a bifurcated space. Automation, e-commerce and associated data services that are transformative for the U.S. supply chain had a tremendous 2016, and they are poised to grow more significantly in 2017. Related, supporting parts of material handling are more likely to remain relatively evergreen, as the U.S. economy continues to transition its retail sector distribution system from bricks to clicks.
In contrast to material handling product groups that are linked to e-commerce development and related warehouse and distribution center buildouts, some material handling product sectors spent 2015 and 2016 in recession. But they are poised to improve in 2017—especially if there is significant U.S. fiscal policy stimulus.
By Jason Schenker, CMT®, CFP®, ERP®, CVA®, Prestige Economics LLC