CSCMP's Supply Chain Quarterly
March 29, 2020
Forward Thinking

Economist warns of moderate recession in 2020

Material handling industry likely to be buoyed by continued e-commerce growth, but chance of Chinese recession looms, Schenker says at MHI conference.

Economic indicators suggest that the U.S. could be headed for a moderate recession in 2020, as rising interest rates and the impact of tariffs put the brakes on a robust North American marketplace, a prominent economist told material handling industry professionals Monday at the MHI Annual Conference in Orlando.

Despite that stormy weather forecast, material handling providers could continue to have relatively smooth sailing, thanks to the "growth tailwinds" provided by federal corporate tax cuts and to the continued growth of e-commerce activities, Jason Schenker, the president and chief economist at Austin, Texas-based Prestige Economics LLC, said in a keynote address at the show.

Still, the industry faces a rising risk of decelerating growth in 2019 and 2020, as shown by recent federal revisions of 2017 revenue figures on material handling equipment manufacturing (MHEM) data such as total new orders, shipments, unfilled orders, and domestic demand, he said.

The ultimate impact will likely be nothing like the serious recession of 2009, but rather a pause in growth, as seen in 2001, before the economy regains its footing again with a potential pickup in 2021, Schenker said. That forecast is based on data featuring a collection of purchasing manager indexes (PMIs) in several countries, which are surveys of purchasing managers at manufacturing companies revealing exactly how much raw materials they need to meet demand for orders they have booked.

However, the long-range forecast is also tracking the increasing risk of recession in China, a variable that could put a serious dent in U.S. economic performance because China holds such a large percentage of the bonds that underlay U.S. government debt, he said.

"The bank that finances our debt is China, and we're in an international trade war with them; that's not good if we need to borrow more money," Schenker said. "Inflation is running above target, so Fed rate hikes are coming, housing is already slowing, and there are no longer zero-percent car loans as we saw just a few months ago. Now, if China changes their policy on holding U.S. bonds while U.S. debt continues to rise, that has bad implications."

Observers saw an earlier model of this scenario play out during the Chinese manufacturing recession lasting through mid-2016, which affected a host of international economic measures, he said.

Schenker's economic checkup was echoed by a similar report released Monday by the National Retail Federation (NRF), which said that retail sales figures for September came in slightly below expectations.

September U.S. retail revenue (excluding automobiles, gasoline stations, and restaurants) increased 0.4 percent over August on a seasonally adjusted basis and were up 3 percent year-over-year unadjusted, the NRF report found.

Those stats reinforce the retail sector's long-term pattern of increased sales, which have grown year-over-year every month since November 2009, NRF said. But despite keeping that streak alive, the numbers were lower than professionals had hoped, according to NRF Chief Economist Jack Kleinhenz.

"Retail sales were somewhat softer than expected in September and some of the weakness can be attributed to Hurricane Florence and geopolitical trade concerns," Kleinhenz said in a release. "Recent solid wage gains and other fundamentals continue to propel spending, which has been supported by tax cuts, saving, and access to credit."

Ben Ames is Editor at Large and a Senior Editor at Supply Chain Quarterly’s sister publication, DC Velocity.

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