August 2020 Volume 2

COVER STORIES

Bridges US State and Local Bridge Construction totaled $23.4 billion during the 12 months through May, down 15.8% from one year ago. The most recent month of Construction was 25.7% below the same month one year earlier. Construction is likely to be on the back side of the business cycle in at least the coming quarters. House Democrats did pass an infrastructure bill with $300+ billion earmarked for road and bridge repairs. However, Democrats and Republicans remain far apart on what they wish to see in the specifics of any potential infrastructure bill. Our outlook for US State and Local Tax Revenue suggests that, barring the passage of an infrastructure bill, limited funding will likely hinder Construction into at least 2021, given the typical relationship between Revenue and Construction.

can think of using weekly or daily rates-of-change. Use that information to know when to start getting aggressive again, or when to batten down the hatches. 3. Stay informed. Follow the latest leading indicator signals. Feel free to reach out to us if you don’t already track a system of leading indicators. 4. Use the downturn productively to prepare for the rising trend. This requires optimism and foresight. We can help with the latter, by virtue of our forecasts, but most of this comes from you and your team. Consider the following as fodder for discussion among your management team: a. Do you have the right people on the bus? If not, where can you find them? b. Do you have any C-players you can shed to free up resources elsewhere? c. Is your production process state-of-the-art? d. Are you competitive in the industries and with the customers you wish to reach? e. Is your firm right-sized, given we expect it will take until the second half of 2023 for US Industrial Production to return to the pre-pandemic level of activity? PartingThoughts We will conclude with a quick aside that relates to the decisions you and your firm will face. There was one major part of US Industrial Production that went into the shutdowns expanding, expanded throughout the shutdowns, and is still expanding – high-tech manufacturing. There is a lesson in that for all manufacturers. In many ways, capital-intensive manufacturing is what we do best here in the United States. The FIA member we interviewed commented that “made in America means something again,” and remarked that while he had temporarily postponed a major capital investment in his firm to boost productivity, he did not cancel it altogether. Rather, he is postponing the investment until he sees more green shoots emerge in the recovery. Ultimately, the FIA member sees what many of ITR Economics’ clients see, and what we economists see as well – an opportunity amid the incredibly challenging market conditions wrought by the pandemic and low oil prices to create a better, more competitive company coming out the other side. Reshoring – utilizing North America’s natural advantages such as a highly talented workforce, close proximity to consumers, and access to cutting-edge capital equipment – is getting a shot in the arm as the pandemic has firms rethinking lengthy supply chains that prioritize price above all else. It is about price today, too, but also capabilities, reliability, service, and cleanliness. Position your firm to meet those demands, and you will likely find yourself busy again as the economy recovers next year and hums along come 2022. ■

Definition: State and local construction of bridges, including overhead crossings (vehicular or pedestrian) in the United States. Source: US Census Bureau. Measured in billions of dollars, not seasonally adjusted. What to Do Now We have laid out where we expect the US industrial sector, key forging end markets, and, by extension, the forging sector will head in the coming years. We have also articulated upside and downside risk scenarios for our outlook. What can you do with this information? ITR Economics President Alan Beaulieu shares the following pieces of advice as you prepare for the recovery trend: 1. Ask yourself what you wish you had done as you neared and approached the bottom of the Great Recession. Do that as we approach the early-2021 business cycle low expected for the industrial sector this cycle. 2. Know your business, your customers, and your industries. Some firms – due to either their position in the competitive landscape, customer base, industry mix, or combination thereof – will face more acute downside pressure in this cycle. Others will be relatively spared. Track your incoming orders, RFQs, and anything else you

FIA MAGAZINE | AUGUST 2020 12