The world held its collective breath and waited for a fiscal cliff that never happened. We anticipated the non-impact, as regular readers know. In fact, things are looking very good, as U.S. consumer spending is at record high levels, and the annual growth rate of 2.6 percent in retail rales (excluding automobiles, adjusted for inflation) is enough to keep the economy growing in 2013. Employment trends are positive, which means more consumers. Disposable personal income (after-tax income) is currently moving higher and that means more money to spend for those consumers.
Regular followers of ITR Economics know the importance of leading indicators. One of those leading indicators comes from the Federal Reserve Board, and it is included in our monthly ITR Trends Report. The National Activity Index has plateaued in recent months (six-month moving average) but maintains its position above the -0.7 recessionary threshold. An overall downward trajectory since February 2012 for the indicator suggests economic growth will moderate into the second half of this year, as we have been forecasting for the last several years.
Business-to-business activity had been trending lower, but the latest numbers are showing signs of increasing activity. New orders for durable goods over the last two months have picked back up to above year-earlier levels. New orders in October and November came in 1.7 percent and 2.1 percent higher than one year ago (adjusted for inflation), respectively. This is a marked improvement from September’s 4.5 percent slump. Readers in many industry segments should be seeing increased inquiries and RDQs in the coming months.
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Our benchmark indicator for the U.S. economy is US Industrial Production. The monthly production figure rose in December to the highest monthly level in over four years. The annual data trend is maintaining a positive heading. The month of December came in 2.2 percent higher than one year ago, and annual production is up 3.7 percent year-over-year. No recession is indicated in the internal figures. Expect additional growth through the majority of 2013. Industrial production is comprised of manufacturing, utilities, and mining. All three components showed improvement for November and posted year-over-year gains.
The health of the consumer is of utmost importance to the auto industry. With employment rising and interest rates remaining near record lows, the economic environment is favorable for consumer spending to keep the automobile industry on a positive footing through the near term.
Inorganic chemicals production is continuing along its upward trajectory. The trend will persist through the remainder of the year, albeit at a slowing pace. Expect a mild contraction next year, followed by renewed rise on the back of a sustainable economic recovery in 2015. Industrial gas production is providing a large boost for the inorganic chemicals market, increasing 14.6 percent over the past 12 months. As global economic activity picks up steam through 2013, demand for gases used in industrial processes will increase as well.
Organic chemicals production is still floundering, contracting 2.3 percent over the past 12 months. However, positive momentum is building, and a brief rising trend will develop early this year. Activity will plateau in 2014. Readers should plan for a recovery in this market in 2015. Ethyl alcohol production, one of the most commonly manufactured organic chemicals, is down 3.9 percent from last year and declining. Higher input costs and lower demand are weighing heavily on manufacturers.
Opportunities will be earned in 2013, not a gift of a rapidly expanding economy. Be aggressive in sales and marketing with special attention paid to growing customer loyalty. Use your cash to drive efficiencies throughout the enterprise in anticipation of capacity requirements expected for 2013.