IHEA Executive Economic Update & Analysis

Each month IHEA (Industrial Heating Equipment Association) issues an economic report about the state of the industry in North America. It makes for interesting reading and for June the focus is on the economy and how COVID-19 has effected it. Please note that this is a condensed version of the report and does not include graphs that came with the original article.

“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. 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. Before one gets overly excited, it has to be pointed out that the readings are still far worse than they were before the whole lockdown mess started. But the fact that a reversal has begun promises some continued expansion. That is the assumption at least. There are provisos that need to be acknowledged as the economy remains in uncharted territory. As has been pointed out repeatedly this is not a normal recession by any stretch of the imagination. It was essentially a manufactured event – a forced shutdown of the entire global economy as a last ditch effort to deal with a pandemic that absolutely nobody was prepared for. The stark fact is that governments are no better prepared now than they were before and there are no other options available despite nearly four months of this outbreak. If the determination is made that the virus is spreading too fast again, that it is straining the medical community again, that it is sickening and killing too many people; the decision will be made to impose another lock down and whatever gains have been made in terms of economic recovery will vanish again.

It is not all that instructive to go through all ten of the positive indicators in this summary, the details are contained in the sector write-ups. There is a common theme as far as these rebounds are concerned and that is worth examining. It is also important to look at the two indicators that did not show recovery as this outlines the challenges that still lie ahead. The common theme is fairly obvious. 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. Their biggest challenge was with their employees as there was a desire to protect the workforce from exposure and that necessitated new protocols as far as distancing and hygiene. The companies that could assign some workers to do their jobs at home did so, but most of the manufacturing activity does not lend itself to remote operations so barriers were erected, new rules established and workers were closely monitored.

In addition to the issues of protection there are old challenges such as finding the appropriate worker for the job. There has been a massive wave of layoffs but these have overwhelmingly been in the service sector and very few of those that are now seeking work have the skills needed by the manufacturer (or by construction or transportation or the medical sector). The attempt by the government to limit the damage from the lockdown meant providing extensive aid to the newly unemployed but that has meant that millions of people are resisting the resumption of employment until that government help runs out. That leaves many companies short of the people they need to start back up.

The sectors that were hit the hardest and have struggled to rebound have been in the service arena. These are the jobs where personal interaction is nearly impossible to eliminate. Food service establishments are still only partly functional and event business is still completely closed down. Personal services have resumed but under very different circumstances and it remains unclear how well the consumer will adapt.

The two negative readings were in capital investment and steel consumption and this is interesting. 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 yet. The vehicle sector is growing again but carmakers are still working off their old inventory.“