August 2020 Volume 2

COVER STORIES

General Purpose Machinery Monthly US General Purpose Machinery Production ticked up 3.9% in June from the prior month. This is the second-strongest month-over-month rise in the nearly 50-year data history. However, monthly Production for each of the last three months was down more than 10% from the same month one year ago. We expect business cycle decline in Production to extend into early 2021. The severity of decline at the trough is likely to be around the severity of the 14.3% contraction in Production at the bottom of the 2001-02 business cycle downturn. Production activity levels are likely to be below the pre-pandemic level through at least 2021, but we do expect some robust rise in both the rates-of-change and the data trend coming out of the low. Given this market’s close relationship to US Industrial Production, we anticipate it is likely to be a middle-of-the-pack performer relative to the complete set of forging end markets analyzed in this article.

Upside Risks While we have baked the anticipated effects of the monetary and fiscal stimulus into the US Industrial Production forecast, we may be underestimating its long-run impact on the economy. Taken together, the unprecedented scope of the stimulus, the relative strength of the US consumer going into this recession, and the potential for additional stimulus pose an upside risk to our US Industrial Production forecast. We have learned over the years that a US consumer armed with deep pockets is a formidable force, in a good way. Do not underestimate the strength of the upcoming rising trend. Implications for Forging EndMarkets

The end-market table above illustrates the profound effect of the shutdowns and low oil prices on various forging end markets. The FIA member we interviewed generally corroborated the above figures. The member cited defense as a relative winner and oil and gas as a relative loser. The member did point out there were nascent signs of a turnaround in the construction machinery and mining (excluding oil and gas) markets. Below we provide an analysis of the latest trends in each of these end markets and where we expect the end markets to head in the coming quarters.

Definition: General purpose machinery manufacturing, including pumps and compressors, material handling equipment, elevators and moving stairways, conveyors, industrial trucks, power driven hand tool manufacturing, welding and soldering equipment, packaging machinery, fluid power manufacturing, etc. Index, 2012 = 100. Not seasonally adjusted. Source: Federal Reserve Board.

FIA MAGAZINE | AUGUST 2020 7