MHI Solutions Improving Supply Chain Performance
Economic Market Analysis
As we look to finish out 2024, the number of risks threatening the outlook are numerous. The geopolitical landscape is fraught with conflict risks from Cold War Two tensions and proxy conflicts. Domestically, the run-up to the 2024 presidential election has been divisive and frustrating for many to watch.
Regardless of the outcome, the person who takes the oath of office in January 2025 will have a mess to contend with. U.S. inflation is still too high, the unemployment rate has risen, GDP growth has softened and U.S. federal debt is at a staggering record level well above $36 trillion. Meanwhile, the Fed faces difficult choices ahead as it navigates the timing of interest rate cuts to support U.S. employment and growth without sending inflation higher again.
U.S. fiscal policy and economic challenges ahead are significant, but interest rate cuts in 2025 and 2026 are likely to provide an uplift to U.S. growth, jobs, manufacturing, housing and material handling. We just need to hang in there.
Global Manufacturing, Material Handling and Logistics
Global manufacturing has struggled to expand for most of 2024, with high interest rates weighing on capital-intensive industries. The outlook for 2025 is more favorable as numerous Fed interest rate cuts are likely, and the dollar is likely to come under pressure against most major currencies. For MHI member companies, the forward-looking Future New Orders series of the MHI Business Activity Index (BAI) has been pointing to improvements in 2025. With solid prospects of easing labor market tightness, falling inflation and falling interest rates, cautious optimism seems reasonable for material handling equipment manufacturers.
For e-commerce and automation companies, the outlook is strong— and likely to prove less cyclical. Consumers are hooked on e-commerce. E-commerce spending continues to rise, which is likely to support new quarterly highs on trend. Plus, e-commerce has risen to the point that the percentage of retail goods sold to predominantly e-commerce retailers is poised to eclipse peak COVID percentages.
Meanwhile, material handling automation-oriented businesses offer increasingly valuable solutions to the labor market challenges and high competition for companies struggling to fill physically demanding in-person jobs. With e-commerce demand likely to remain high and rise further over time, more automated solutions will be needed to help myriad businesses fulfill the critical promises of e-commerce: fast, cheap and efficient. Cuts in interest rates could make implementing value-add automation projects—especially larger projects—a lot more attractive.
Geopolitical Risks to Supply Chains and Trade
Cold War Two risks remain explosively disruptive for the global outlook and material handling industries. The congealing of more closely aligned geopolitical conflict systems threatens everything from manufacturing supply chains and oil prices to inflation, tech industries, electric vehicle battery supply chains and growth prospects for the global economy. None of this is good, and these geopolitical risks seem unlikely to dissipate.
So, while the Fed dutifully wages a challenging war against inflation, our conflict-inclined geopolitical adversaries and their proxies militarily threaten global trade and supply chains in a way that adds disruptions, delays and costs. Put simply, Cold War Two is inflationary, and it could flare up at a moment’s notice.
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