The industrial economy as represented by US Industrial Production is on the verge of a recovery that will yield sustainable rise throughout 2021. If you are seeing evidence of upward momentum in your monthly or quarterly data metrics, push full steam ahead to take full advantage of the rising business cycle.
Overall Producer Prices for 2021 are projected to come in 2.1% above the 2020 level. Commodities prices within that category are already posting large increases. Further increases are likely to persist as the economy grows in 2021. Raising your own prices in order to repair and increase your margins will be imperative this year. Consider locking in input costs where possible to further protect your margins.
Consider locking in input costs where possible to further protect your margins.
- US Crude Oil Spot Prices: Monthly Spot Prices are in the low- $50s-per-barrel range, which is the profitability threshold for most oil producers. This bodes well for investment in production and drilling equipment.
- US Natural Gas Spot Prices: In December, quarterly Spot Prices rose above year-ago levels for the first time since April 2019. Upward pressure on Prices is expected due to a polar vortex and the unusually cold temperatures it has brought to much of the US.
- US Steel Scrap Producer Price Index: The fourth-quarter Price Index came in 32.7% above the fourth quarter of 2019. Supply shortages will contribute to higher Prices during 2021. If steel is an input for your business, assess your supply chain resiliency and, if necessary, diversify your sourcing.
- Aluminum Spot Prices: Spot Prices during the last three months were up 12.9% relative to the same three months one year ago. Prices are likely to rise even faster during the near term.
The so-called “positive problems” are becoming increasingly common for our clients. Upward momentum in quarterly US Nondefense Capital Goods New Orders, as well as overall recovery in the US economy, is putting pressure on businesses to increase capacity quickly or lose out to competitors. Repairing disrupted supply chains and cutting down turnaround times for hiring and training labor will be a challenge during the first half of this year. If warranted, consider leveraging historically low interest rates to invest in capacity-increasing efficiences. Ensure your vendors are ready, too; if needed, look for additional vendors as a safety net.
Make Your Move
The US industrial sector is on the cusp of Phase A, Recovery. If you trend in sync with the macroeconomy, start preparing your business now for sustained rise this year, if you have not done so already. If you wait, you may miss out on growth and face higher capital prices and longer wait times. Use the leading indicator evidence to bolster your confidence to make the investment.
Overall momentum in the S&P 500 is positive despite recent volatility. The money supply input and leading indicator evidence are both signaling additional rise. Stay in the market, but be smart.
ITR Economics' Long-Term View
2021: Recovery and Rise