Headwinds

Trends in industrial gas production and wholesale trade of chemical and allied products are a mixed bag.

There is good news for GAWDA members; we have raised our 2014 forecast US Industrial Production (our benchmark for the overall economy) by 2.2% from what we reported at last year’s conference. The favorable shift in the forecast is due to stronger than expected activity in some of the indicators. If we were to look simply at results to date, we would leave the forecast for 2014 alone since 2013 came in just 0.3% below the outlook we posted in the First Quarter of 2013. GDP for 2013 came in a thin 0.7% above our December 2012 estimate. Changing a forecast when results are on target is never easy. It is particularly troublesome when a favorable shift is not universally supported by the extant indicators; in particular the disappointing results seen in Retail Sales through December, weak car sales in December and January, stock market jitters in January, and a hefty drop in the ISM’s January Purchasing Managers Index.

Please note that the economy’s rate of growth in 2014 is expected to be below that posted for 2013 as measured by US Industrial Production (2.6% growth in 2013 vs. 1.9% for 2014). We are still calling for a period of seasonal softness in late 2014 and early 2015. The softness will just be a touch milder than we talked about a year ago. GAWDA members should still expect solid business opportunities in 2015, 2016 and 2017.

Although we are forecasting that US Industrial Production will have a “soft landing” in 2014, don’t automatically assume that every company or market segment will experience the same. It is very possible that: 1) a company or market will over (or under) swing the macroeconomic cycle on the downside, and 2) the timing for many firms could vary from the macro timing. Readers who have us produce an Executive Vantage Point (EVP) for them will likely notice that the timing estimates have been pushed out a few months in 2014, which gives you more time to expand and prepare for the headwinds.

There are always risks to an economy. The current risks to the US economy include the potential for a possibility that taxes and increased healthcare costs will slow consumer spending. Uncertainty and jitters in the stock market could easily turn into a full-blown correction. A steeper-than-median correction could slow business-to-business spending, as we are currently seeing in Nondefense Capital Goods New Orders. A disruption in this segment of the economy will translate into slower job growth, and thus to slower growth in general. The slower rate of rise evident in the housing market could transition into mild decline earlier than we are currently anticipating (banking regulations and consumer issues would be the proximate causes). Troubles in the housing market would signal a broader economic slowdown.

Please note that the trend in Industrial Gas Production (NAICS 32512) is running 3.6% above year-ago levels, but the rate of growth in the levels of production is slowing. Business should be good through the middle of the year. GAWDA members will generally belong to NAICS 4246 (Wholesale Trade of Chemical and Allied Products). The overall category is growing by 4.1% for the last twelve months as compared to the year-ago level. The latest quarter has seen activity cruise at 5.2% above the year-ago level. GAWDA members can compare their rate of growth to these measurements as a rough yardstick to company performance. The relationship to Wholesale Trade of Chemical and Allied Products suggests that members will see business slow in the latter stages of 2014. Plan on those headwinds, primarily by making sure you have sufficient cash to carry the firm through a period of slower growth.

Gases and Welding Distributors Association
Alan Beaulieu Meet the Author
Alan Beaulieu is president of ITR Economics in Manchester, New Hampshire, and www.itreconomics.com. Co-author of Make Your Move, he serves as chief economist for numerous U.S. and European trade associations.