IMTS Summer Economic Update: Taking a Dip, Not a Dive
Category: Business • Aug 14, 2019
This summer, the manufacturing technology industry is taking a dip—an economic dip. The water may be cold, but we are just dipping our toes in. With careful planning and preparation, this small economic downturn can actually lead to new opportunities. So put on your sunscreen and get ready.
The manufacturing technology industry is just starting to feel the impending economic downturn, but key indicators point to a steady decline for the next quarter. Fortunately, this will be a “short and shallow” downturn, according to AMT Chief Knowledge Officer Pat McGibbon.
China, China, China
It’s all about China. The ongoing trade war with China is creating a major drag on the global economy. Pat noted that this particular slowdown is driven largely by political and trade issues, as opposed to legitimate economic concerns. “We have the two biggest pieces of the market disagreeing and not being able to facilitate trade,” he explained.
Tariffs on Chinese goods are impacting domestic manufacturers. Manufacturers were largely prepared for the section 232 tariffs on aluminum and steel and able to absorb those costs, Pat said. The section 301 tariffs are a different story. These tariffs are making goods 25 percent more expensive. Pat predicts that this will ultimately lead to more Chinese companies building products themselves, instead of importing them—a major concern for U.S. exporters.
Modest Growth Predicted in 2020
Pat now predicts that U.S. machine tool orders will decrease by 20 percent in 2019. Despite an overall decline in 2019, 2020 will likely be a time of recovery and modest growth. Pat anticipates that after the second quarter in 2020, there will be a four percent growth in all machine tool orders.
Caution Lights are On
The top 10 economic indicators are moving toward the yellow, signaling both a slowing of the economy and wariness about the future. Because of the political nature of this economic downturn, it is hard to address concerns and allay fears. However, there are many positive things happening in manufacturing.
The Beacon(s) of (Green) Light
The aerospace industry will be key to leading manufacturing as a whole out of the current downturn, according to Pat. He also noted positive trends in the automotive industry, where heavy investment in research and development for alternative fuel and electric cars is driving capital spending.
The medical industry is growing as well, with many exciting projects in the pipeline. In fact, medical manufacturers are now operating at full capacity and are increasingly using job shops to fill their orders.
The off-road/agriculture and construction industry outlook remains positive, and Pat anticipates that a federal, bipartisan infrastructure bill could drive major growth in this industry.
While the energy sector has seen slow growth recently, it should recover quickly with new investments in alternative power sources, as well as oil and gas production.
Proceed with Caution, but Proceed
While it is a time of concern, we are not on the verge of a crisis. This is a dip--not a dive. “We will be down 20 percent, but it is not 2009 or 2010. It is going to be a short and shallow downturn,” Pat concluded.
To view Pat’s webinar, visit the Beyond IMTS channel on IMTSTV.
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