The materials handling industry is notoriously cyclical, rising rapidly in good times and taking a steep fall in recessionary times.
For years, in fact, the Materials Handling Industry of America (now MHI) used to show what looked like a wave diagram over time to explain the industry's historical rise and fall in order and sales levels.
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But in recent years, under new CEO George Prest, MHI has become a lot more sophisticated about such overall economic and industry specific analysis.
That change is in large part coming from the relationship MHI struck three years ago with Jason Schenker, CEO of Prestige Econoomics, a highly regarded economist who has been cited repeatedly in recent years as the top forecaster by leading financial publications in numerus categories, such as predictions for a variety of commodity prices.
With the relationship with MHI, Prestige provides a variety of data on the economy to association members from governmental and other sources. The firm also leads a monthly survey of those members on what they are seeing in the market in terms of orders, shipments and other metrics.
This produces results that are similar in approach to what the Institute for Supply Management (ISM) does each month in surveyng some 350 manufacturers to produce the well-known Purchasing Managers Index.
Part of the MHI-Prestige relationship includes Schenker doing a presentation at MHI's annual conference, held for 2016 two weeks ago in Tucson, AZ. As has been the case in the previous years, Schenker moved rapidly through a virtual firehouse of data and information, but the overall message was clear: expect a recession, and a sharp decline in US spending on materals handling equipment, in 2017.
In general, the past few years have been strong for materials handling vendors, as companies look to automate distrbution and manufacturing operations in the face of labor and cost challenges, an overall economy that is positive (although not strong), and big spending by retailers and other companies in support of ecommerce fulfillment.
But Schenker expects the good times to come to an end, forecasting that after very weak real US GDP growth of just 1.3% in 2016, the US will indeed fall into a mild recession in the first half of 2017, and see modest full year economic contraction of -0.4%.
Schenker says the slowdown can already be seen in the numbers from the monthly survey of MHI members. Take the chart below, for example, which shows MHI member inputs on shipments of materials handling systems since mid-2015. As can be seen, while generally still positive (scores over 50), the rate of growth has been slowing dramatically, with the three-month moving average recently dipping below that 50 mark.
Source: Prestige Economics
The news from MHI members is even more negative when it comes to unfilled orders, or "backlog."
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That measure has fallen below the 50 mark for seven out of eight months, dropping especially sharply in September, as shown in the graphic below.
Source: Prestige Economics
What does it mean that the level of unfilled orders has been falling while, at least until recently, the level of shipments have been rising (though at a declining rate)?
It means that materials handling vendors are living off their order backlogs, shipping equipment to customers today ordered months or even years ago.
But the party is coming to an end, as can seen in the graphic below. Ater a big drop in new order growth in 2016 (to just 2.6%), Schenker expects US material handling sales to fall a sharp 13.9% in 2017. Most other forecasts for the industry are also negative.
Source: Prestige Economics
So there is the story. It's not known if Schenker's forcasts have changed after the first reading of Q3 GDP growth came out much better rhan expected last week, at 2.9%. That number, however, could be revised down in coming weeks.
But at some point the economy, having avoided another recession for going on eight years now, is sure to slow some time, and while trends are overall are in the favor of materials handlign system vendors, as usual they are likely to see some tough times for awhile when that slowdown arrives.
Do you agree or disagree with Schenker's views? Do you see materials handling sales to drop sharply in 2017? Let us know your thoughts at the Feedback section below or the link above to send an email.
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