Manufacturing outlook strong
March 28, 2012
Our outlook for the industrial sector is nearly unchanged after getting another month of positive manufacturing data. Continued weakness in the energy and mining sectors continues to drag down the total figure, but it is not enough to pull down our overall outlook for the next few years. The sub-components that are critical to trucking continue to show strong activity. As we have stated in recent posts on the economic outlook, the upside possibilities are becoming more pronounced. Unfortunately, they are still not enough to outweigh the risks and move our base forecast significantly higher.
We remain bullish on having a strong industrial sector for the foreseeable future, and believe that there are now chances for seeing a one or two quarter surge of activity in the service markets that could help translate into additional activity in the industrial sector.
Manufacturing remains an important source of freight-movements. The industrial sector led the recovery during 2010 and 2011 (5.3% and 4.2%, respectively) and is looking to remain reasonably strong for the next couple of years. The outlook came down during the summer but has now stabilized and still remains high relative to the GDP forecast. We expect that premium to slowly dissipate over the next year or two. Industrial production is forecast to increase 4.5% in 2012, 4.1% in 2013, and 3.6% in 2014.
Unless the economy has a full blown recession we expect the manufacturing portion of the economy to remain a stronger force than it has been during recent history. This is very good news for the truck sector since a single manufactured product has a huge multiplier effect on freight movements. Bad signs would be a free-fall in the European market or a drastic slowdown in China. Obviously, the situation in Iran bears close watching but would likely be only a 6 month drag on the economy, as long as the responses stayed away from the ‘nuclear’ option.
Once again, there were no major changes to our outlook. There was modest improvement to the 2013 and 2014 forecast – but it was a relatively minor change.
FOOD: Food output mostly declined through the first three quarters of 2011 after strong growth in the latter half of 2009 and 2010. Output surged in Q4 and appears to be doing well in Q1. Recent growth is a cast of recovery from the decline. We expect output to return to trend growth of about 2.5% over the next two quarters.
STONE, CLAY & GLASS PRODUCTS: After huge declines from mid-2007 through mid-2009, output has been mostly slowly growing for the last two years. Output peaked late last summer and has been steady or slightly declining since then. We expect to see positive growth over the next two quarters as construction continues to pick up. Long term growth is expected to be in the neighborhood of 3.5% annually.
CHEMICALS: Output has been mostly growing since major declines in 2008. Growth slowed in 2010 and 2011 after being fairly healthy in 2009. Output declined in Q4 after growing through the middle quarters. Q1 output appears to be growing and we expect good growth over the next few quarters. In the long run, output should grow about 4% annually.
PRIMARY METALS: Output declined sharply from the middle of 2008 through the middle of 2009. After a strong recovery in the latter half of 2009, growth has been more sedate. Output was constant through the middle quarters of 2011 before surging in Q4. We expect growth to decelerate slowly over the next year. Long term growth should be about 4% annually.
LUMBER & WOOD: After three years of steep decline, output has grown slowly since early in 2009. Output grew very strongly in Q4 and appears to be doing almost as well in Q1. We expect growth to continue fairly well, slowing slightly over the next two quarters. As the housing industry continues to recover, we expect long term growth of a little over 5% annually.
PETROLEUM PRODUCTS: Growth has been near zero for several years, although there have been isolated quarters of major growth or decline. Output jumped in Q3 but steadied in Q4. We expect to see slight declines in Q1 before a return to steady output over the long term.
COAL: Output declined in 2009 but returned to nearly the long term level in the first half of 2010. Stockpiles at electrical utilities are nearly back to long term levels and exports have been impacted by economic difficulties in Europe. Output was up strongly in Q3, but declined in Q4. We expect continued declines over the next year. Long term growth is expected to be about 1% annually.
OIL & GAS EXTRACTION: Output has grown strongly for the last year and a half. After exceptionally strong growth in 2011, output declined at the end of the year. In spite of soaring oil prices, output continues to decline in Q1. We expect strong growth in Q2 and a return to long term trend growth of about 2%.
FABRICATED METAL PRODUCTS: Output has grown very well over the last two years as the manufacturing sector recovered from the recession. Although growth slowed a little in the second half, output appears to be up strongly in Q1. We expect growth to slow over the next three quarters. Long term growth is expected to be around 3% annually.
METAL MINING: Metal mining declined very sharply during the recession but recovered almost all of the losses through the end of 2010. Q3 losses were recovered in Q4 and output appears to be growing strongly in Q1. We expect growth to slow over the next year. Long term growth is expected to be about 3% annually.
STONE & EARTH MINING: Output declined from 2006 through 2009 but has been about zero, although very volatile, for the last two years. Output was off in Q4 but appears to be returning to trend growth in Q1. We expect trend growth of just under 3% annually to continue.
UTILITIES: Utilities output has been nearly constant and fairly volatile for the last five years. After growing well in Q3, output declined sharply in Q4. The declines appear to be continuing in Q1. We expect to see growth over the remainder of the year, with a return to trend growth of around 1.5% annually in 2013.
MINING: (Sum of: metal ores, stone & earth, coal, oil & gas) Mining output has grown very strongly for the last two years, led by increases in Oil & Gas extraction. Mining output appears to be declining in Q1. Our forecast calls for a return to solid growth in Q2, with growth slowing after midyear. Long term, output should grow about 1% annually.
DURABLES: (Sum of: primary metals, fabricated metal, lumber & wood, stone clay & glass) Durables growth has been very strong for the last two and a half years, led by gains in fabricated metal products. Except for a slowdown in 2011Q2, growth has been well over 5% annually during this period. Growth appears to be accelerating in Q1. We expect growth to slow over the next two quarters, but long term trend should be a little over 5% annually.
NONDURABLES: (Sum of: food processing, chemicals, petroleum products) After strong declines in 2008, growth surged in the latter part of 2009. Except for modest declines in Q2, growth has been reasonable for the last five quarters. We expect fairly good growth over the next few quarters, let by increases in chemicals output. Long term growth is expected to be a little over 2% annually.
Click the link below to print a print-friendly page of the this analysis.Print Page
Use our chart creator to generate charts using the data that was used in this analysis.TruckGauge Chart Creator
This functionality is only available to Premium Members. Please upgrade your account to gain access to the data used in this analysis.Upgrade to a Premium Member