Put succinctly, many leading indicators for the overall US economy and the industrial sector are saying that recovery and rise will characterize 2021. Both the global and domestic purchasing managers indexes (ISM and JP Morgan) are in rising trends, indicating opportunity to be had during at least the next 12 months. Manufacturing rose 2.6% from the third to fourth quarter of 2020, but is still 3.2% below the year-ago level. While it is evident that overall momentum is building, not all markets are moving together. But the pandemic has produced some relative “winners.”
These include US nondefense communications equipment new orders, up 25.7% for the three months ending in November, and US computers and electronics new orders, up 9.5% for the same time period. The requirements of working from home and the desire for at-home entertainment are driving demand in these markets.
Another “winner” is the refrigeration and HVAC market. In the fourth quarter, production for the industry was up almost 20% from last year. The surge in single-unit housing starts will support further growth in 2021.
North American light vehicle production has been hindered by a decline in overall travel and by material shortages, but is entering a growth period. Production in the fourth quarter was up 1.3% from a year ago. Retail sales trends signal upward momentum through the first half of 2021. Production for 2021 as a whole likely to come in more than 15% above 2020.
Has the pandemic changed your customers’ needs? Consider conducting research to ensure you are still aligned with their needs and expectations. Doing so will help you protect your market share and enable you to avoid having to compete solely on price.
The new Wraptor™ A6200 Wrap Printer Applicator prints & wraps cable in 7 seconds! Compact & lightweight, this printer is ideal for cellular manufacturing.
What you need to know: Expect a notable rise in commodity prices as the US economy rebounds from the 2020 recession
Companies will likely feel inflationary pressures eating into profitability in 2021 more than in 2020. At first glance the US Producer Price Index (PPI), a measure of inflation for companies rather than consumers, is down 1.3% compared to the same time last year. However, prices have generally been creeping up since April 2020 and are on the verge of surpassing last year's level. This rising trend in the PPI over the last seven months reflects increasing costs for material inputs, some of which are up dramatically in recent months. The chart below illustrates how some commonly used base metals have fared.
The quarterly trends for aluminum, copper, steel, and zinc prices all reflect cyclical rise. Assessing these commodities on a monthly basis is even more compelling. US copper futures prices rose from a low of $2.23 per pound in March 2020 to $3.52 per pound in December (see below). This is an increase of nearly 58% in a span of nine months. Aluminum spot prices rose from a low of $1.46 per metric ton in April 2020 to $1.98 per metric ton in December, an increase of 35.4%. The Steel Scrap Producer Price Index was up 51.4% over the same timeframe.
It’s not just the base metals that are posting price increases as 2021 continues. Notable rise for commodities ranging from oil to lumber to corn is also occurring as the US economy rebounds from the 2020 recession. Typically, upward movement in commodities prices coincides with business cycle rise for the US economy as demand increases. Therefore, pressure on commodity prices is likely to persist over the course of this year, in line with expectations for business cycle rise for the US industrial economy starting in the second quarter.
In response to these developments, companies may want to find ways to increase prices in 2021 in order to protect margins. Companies should evaluate their own customer bases and selectively implement increases for those clients for whom it makes sense. Strategically raising customers’ prices will go a long way toward protecting your profitability in 2021.
Arrows indicate 12-month moving total/average direction