Updated Article: Assessing December's Material Handling Data
Title: Positive Outlook for the Material Handling Industry, Despite a Challenging December
The December 2024 MHI Business Activity Index report revealed a mixed bag of results for the material handling industry. While some categories showed contractions, such as capacity utilization, shipments, unfilled orders, inventories, and exports, others experienced expansions. Positive growth was observed in business activity, new orders, and future new orders.
The Bald Truth About Material Handling Data
The U.S. industrial economy has shown inconsistent results recently. Durable goods orders and industrial production contracted in November, while the ISM manufacturing index contracted in December for the ninth consecutive month. However, there have been improvements in the ISM manufacturing index, approaching the breakeven level of 50 in December.
Bracing for the December MHI BAI report, we learned that the material handling industry exhibited a mix of results. Some categories experienced improvements, like the growth in new orders and business activity, while others showed contractions, such as capacity utilization, shipments, and inventories.
The Unfilled Orders and Inventories Conundrum
There were factors that remained weak, like unfilled orders and inventories, persistently troubling the industry with their troubles. Unfilled orders contracted in December, with a majority of respondents reporting declines, and inventories also contracted. Despite negative trends, the recent data indicated that companies had been reducing their backlogs and work-in-progress inventories over the past two years.
Future New Orders Remain Steady
Future new orders in the December MHI BAI remained strong, showing that almost all respondents expected future new orders to increase in twelve months. While there was a slight deceleration in the series and moving averages, the expansion percentages remained exceptionally high.
Looking at the Bigger Picture
Interest rates have started falling and are anticipated to decrease further through 2026, according to recent Fed member forecasts. The drop in U.S. interest rates and the likely decline in the dollar are expected to support material handling and manufacturing activities, keeping them on an upward trend over the next two years.
Enriching the Data: Interest Rates and Their Impact
Interest rates have been influenced by the Federal Reserve's attempts to combat rising consumer prices post-pandemic. After increasing the benchmark federal funds rate 11 times between 2022-2023, reaching a range of 5.25% to 5.5%, rate reductions occurred due to cooling inflation. As of now, expectations exist for additional rate cuts. Chief Financial Analyst Greg McBride predicts another three rate cuts in 2025, resulting in a benchmark rate that spans from 3.5% to 3.75%.
Mortgage rates are expected to settle into the mid-6% range by the end of 2025, with no anticipation of dipping below 6% at any point during 2025.
The industrial lift truck market has experienced volatility due to the pandemic and subsequent supply chain disruptions. Market experts like Martin Boyd from Big Joe have commented that rates reductions can serve as effective marketing tools but do not significantly impact payments. Consumer confidence and supply chain dynamics remain more critical factors in industrial truck investment decisions.
As for manufacturing activity, U.S. factory output has contracted for six months, with the S&P Global US Manufacturing PMI showing a decrease from 49.7 in November to 49.4 in December 2024. This contraction is attributed to lower new orders and weaker demand, particularly from Europe, due to policy changes and uncertainty.
Despite these challenges, manufacturers have demonstrated a positive approach by hiring new employees, while decreasing purchasing levels due to lower capacity demand and higher input costs. Output charges have been aggressively hiked as a result.
Conclusion: What Does This Mean for Material Handling and Manufacturing?
With expectations of lower interest rates and a downward trend of the dollar, material handling and manufacturing activities are likely to be supported through 2022, providing a more stable outlook for the industry.
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- The mixed results in the material handling industry, as shown in the December 2024 MHI Business Activity Index report, could be influenced by broader economic factors, such as the Fed's interest rate decisions.
- The anticipated decrease in U.S. interest rates, as suggested by recent Fed member forecasts, could positively impact the material handling and manufacturing industries, potentially keeping them on an upward trend.
- The drop in interest rates, combined with the likely decline in the dollar, could improve the supply chain dynamics, benefitting both the material handling and manufacturing sectors.
- In the context of the industrial lift truck market, rate reductions may not significantly impact payments but can serve as effective marketing tools. However, consumer confidence and supply chain dynamics remain more crucial factors in industrial truck investment decisions.
- The material handling and manufacturing industries may benefit from the expected lower interest rates and a downward trend of the dollar, providing a more stable outlook for these sectors over the next few years.
