“Lions and tigers and bears, Oh my.” The Wizard of Oz
I don’t think any but a few curmudgeons would argue that the economy has been hitting on all cylinders for the last two years. What’s more, the Fed recently raised its estimates for growth and reported that from where it sits, blue skies are ahead.
Today at MHI’s annual conference in Orlando, Jason Schenker, the founder of Prestige Economics, declared that view a little too optimistic, with clouds on the horizon. Those include a slowing of growth in 2019 and what I understood to be a mild recession in 2020, followed by a modest uptick in growth in 2021.
Why the divergence? Schenker told attendees that in an effort to remain politically neutral, the Fed is not considering the impact of tariffs on the U.S., or the global economy for that matter. “Willfully” ignoring the impact was his phrase. Instead of lions, tigers and bears, Schenker sees the impact of a tariff war with China, rising interest rates, potentially higher oil prices and a global slowdown, especially in emerging economies, as the most important clouds on the horizon.
Schenker is not alone in this assessment, despite the Fed’s optimism. Schenker noted that the IMF has recently revised its estimates for the global economy downward and that 81% of his clients are expecting a recession in 2020.
If there was a silver lining in those clouds, it’s that the market for material handling solutions, while softening in the next few years, will remain strong, because e-commerce sales are likely to continue to grow, driving the need for more equipment. In 2018, for instance, new orders for materials handling equipment are likely to be up 10.8% to a record $34.9 billion. Schenker is already seeing some softness, however, as the year comes to a close and is predicting a 4.4% drop in new orders in 2019, a 4% drop in 2020 and a 1.6% increase in 2021. He also expects continued interest rate hikes through 2020 followed by interest rate drops in 2021 to counter any economic slow down.
A few other high level bullet points of interest: