October 19, 2016

Economist warns of modest recession in 2017

Strong dollar hurting material handling exports, but long-term forecast is solid, economist tells MHI conference.

By Ben Ames

The U.S. material handling sector could be impacted by a moderate economic recession in 2017, but firms can withstand the pressure if they focus on providing long-term solutions to warehouse automation challenges, according to an economist who specializes in the industry.

Jason Schenker, president and chief economist at Austin, Texas-based Prestige Economics LLC, told the MHI annual meeting in Tucson, Ariz., yesterday that persistent weakness in industrial activity, especially in the U.S. and China, has already begun to take its toll on material handling demand, especially when measured by shipment trends.

Schenker maintains that the material handling sector is nearing the end of a six-year up-cycle, an unusually long period, and that the next 15 months will be tough sledding as the U.S. tries to dig out from a 14-month-long industrial recession and China transitions from an investment to a consumption economy. The data contained in Prestige's monthly forecast, the "MHI Business Activity Index," bears out these trends, he said.

Macroeconomic warning signs include lingering low oil prices; a stubbornly strong U.S. dollar, which has dampened demand for exports of material handling equipment; uncertainty about the presidential election; weakening new auto sales; and the rise of subprime auto loans, he told the group.

"Things are slowing up. [Capital expenditure] decisions will have to show a high [return on investment] to be justified. Industries are being very careful with their spend," Schenker said.

The good news, he added, is that any recession will be brief and shallow, and demand for material handling products and services should rebound in 2018, along with the U.S. economy. In addition, long-term trends such as the rapid growth of e-commerce will continue to spur demand for material-handling solutions, especially in the automation arena, he said.

"I'm a bit concerned, but I don't expect another Great Recession," he said, adding "if you can hold your nose through 2017, you'll be fine."

About the Author

Ben Ames
Senior Editor
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.

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