Problems in Asia and declining corporate profits weaken orders
After an exceptionally strong 1997, the Modern Materials Handling index of orders will decline this year before rebounding next year.
By Daryl Delano -- Modern Materials Handling, 10/1/1998
The exclusive Modern Materials Handling index of orders fell by an estimated 2.9% between the first and second quarters of 1998. The decline coincided with a sharp deceleration in the annualized growth rate in overall Gross Domestic Product (GDP).Business investment in new plant and equipment, which had been the driving force behind a long period of economic expansion, grew at a slower rate in the second quarter of this year as compared to the first quarter.
The two most significant factors leading to the sharp deceleration in capital spending are the myriad economic problems bedeviling the Asia/Pacific region (and the former Soviet-bloc countries), and the sharp decline in corporate profit levels. The problems of Asia have been felt directly by the industry in the form of sharply lower exports of materials handling equipment during the first half of 1998.
Second-quarter 1998 orders for unit handling conveyors were 8.9% below those during the first-quarter. More disturbingly, unit conveyor orders were 26.4% lower during this year's second quarter than during last year's. Things have not deteriorated as much as that single number might suggest, since last year's second quarter was an extraordinarily strong period for new orders.
Industrial truck orders declined 10.2% between the first and second quarters of this year. For the six months ending this June, however, industrial truck orders are still running 5.1% ahead of the pace of orders for the first half of 1997.
As a result of the disappointing second quarter results from some of these important segments of the materials handling industry, we are revising our index of materials handling orders downward slightly.
Unit conveyor orders will decline by about the same amount this year as they rose in 1997, by about 6.8% in 1998 after last year's 7.8% increase. However, because of the strong numbers posted during the early months of this year, we still forecast a small gain in industrial truck orders during 1998. We currently see a scant 0.7% increase in total 1998 orders when compared to 1997.
Against the backdrop of stable but solid domestic demand, and strengthening foreign demand, we believe that 1999 should be a more solid growth year for the entire industry. Overall, this translates into an order increase of 4.5% next year.
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