"It may not be time to start dancing in the streets, but the news this month is certainly a stark contrast from what it was last month." This note of encouragement begins the Industrial Heating Equipment Association’s (IHEA) Executive Economic Summary for the month of June 2020. The report continues, "Of the eleven indicators we watch, there were nine trending in a positive direction and not by a narrow margin. This was robust growth and significant gains."
The common theme among the nine indices reporting a positive trending was that "The lockdown was lifted and business was allowed to resume. The expectation was near universal and proved to be accurate. The vast majority of businesses promptly reopened to the degree they were able and that varied with the sector. The majority of the manufacturing community was able to resume operations with minimal adjustment."
The recovery in automobile sales is impressive, but it will take awhile to offset the decline of the last few months. The summary explains how vital the health of the auto sector is to the overall economy: "It is hard to overestimate the importance of the overall auto sector to the health of the greater economy. It is not just the thousands of jobs in the assembly plants but the tens of thousands of jobs in the companies that supply the parts and assemblies. Not to mention the jobs in the dealerships, the service operations, the people in the insurance and financing communities, the marketing people and the guys that work the car wash. It is a massive economic engine and that is what led to the old phrase 'What’s good for GM is good for the nation.'"
The Purchasing Managers' Index also reflected significant gains. Last month it dropped to the 30s, which is the lowest it had been since its inception. The rebound was expected as the lockdown restrictions were loosened, however, it was much stronger than anticipated. The report explains, "The fact that this is coming from the more future oriented part of the index is also encouraging. This indicates there is more confidence in the future as the assumption is that there will be a further return to normal business operations. It is also an indication that new orders have been arriving in a variety of sectors as almost all of the measured categories saw an improvement. The notable exceptions have been aerospace and sectors tied to hospitality and travel in general."
The two negative readings were in capital investment and steel consumption. The summary cites, "The desire to invest in either new machinery or expansion is still very low as the future of the rebound remains in question. Most companies have been working off their inventory and have not needed to add anything – there is still plenty of slack. The investment outlook remains cautious. Steel consumption remains down as there has been a collapse in public sector activity and the commercial construction sector has not figured out demand as [of] yet. The vehicle sector is growing again, but carmakers are still working off their old inventory."
Reminding readers that the readings are still worse than they were before the pandemic and lockdown caused the economy to tumble, the summary states, "But the fact that a reversal has begun promises some continued expansion." A caution is offered, however, because "the economy remains in uncharted territory" due to the fact that this hasn't been a "normal recession."
Bottom line: There is hope. We'll take it.
The report is available to IHEA member companies. For membership information, and a full copy of the 12-page report, contact Anne Goyer, Executive Director of the Industrial Heating Equipment Association (IHEA). Email Anne by clicking here.
