Miles’ Letter: Q4 2018


Posted by Jim Miles, Director – Engineering and Research

 

Miles’ Letter Q-4 2018

Out With a Bang

I have just wrapped up a quick environmental scan of the major market verticals.  I want to thank the roughly 150 technical and business leaders that took time to speak with me to provide this overview.  To summarize the economic outlook for the next two quarters – the state of the manufacturing union is strong!  By vertical, here is the outlook:

Automotive:  Flat to down generally, however, if we look at the technology sectors within automotive, it’s crazy up. *

Aerospace:     Up across the board.  Everything from turbine blades to air frame components is predicted to be going strong.  In some cases, this up tick is predicted through 2023.

Oil & Gas:       Up nicely and continuing to recover from a long down period.  This is true for most of the energy vertical.

Over-road:     Class 6-8 trucks are flying off the show-room floors and that demand is predicted to continue for a while.  While root-cause is somewhat vague – our best guess is demand driven by a big jump in shipping – especially through e-commerce sources.

Off-road:        Lead by Caterpillar and CNH, the off-road segment has really jumped up as well.  We are also seeing John Deere and the agricultural sector up nicely and predicted to stay strong.

Consumer:     Consumer confidence is still very strong with low unemployment rates.  As a result, consumer spending even on big box items has been strong and we don’t see that being threatened any time soon unless something crazy happens (always a possibility in the current political environment).

The overall outlook, as can be seen from the comments above is exceptional.  All of this must be somewhat tempered by the administration’s heavy-handed approach to trade negotiations.  Their “my way or the highway” approach puts many partners off, and even if the US gets a good deal for one part of a vertical (say primary metals production) another part of that same vertical may feel a cost burden.  Still, it’s pretty amazing news for the overall manufacturing community.

Economy vs. Job Market

As I have said to many of my contacts when I reached out: “I’m not calling to find out what your employment needs are, the business environment will dictate head-count.”  Overall employment levels across the board remain at near record levels.  That does not mean that no one can find enough people to do the work that needs to be done.  There are a number of sectors, such as parts of the automotive supply base, that have done what they need to do in terms of what they predict for the next six months, and feel they are in a pretty good place.  They’ve done their hiring and are now optimizing their business and manufacturing models.  Other areas, such as heavy truck, are seeing unexpected growth and may still be finding it difficult to find the people they need.  With the robust economy still chugging away, those areas needing to find talent are still fighting a talent-lite labor pool.

*Automotive: up or down? It depends!  I’ve spoken before about business cycles within business cycles.  Right now, in the automotive vertical we are seeing something rather unique.  Because of the technology emphasis on electrification, hybridization, autonomy, and advanced driver safety systems (ADAS), many industry analysts are thinking that the whole sector is in an upswing.  That’s not really true.  If one is involved in a non-powertrain commodity, such as interiors, business looks very flat and perhaps even a bit down as we look at the end of this year and the beginning of next.  There are very few new platforms being launched and the on-going shift to SUVs away from passenger cars.  Even though a decent build year is predicted for 2019, those not directly involved in the push for electronics in the vehicle are felling less optimistic.

*Electrification takeover in powertrain? While all the talk at conferences and at technology strategy meetings says the autonomous electric car is the vehicle of the future, the future is not here yet.  In spite of the rather condescending radio ad by Volkswagen (with the Flintstone’s theme playing in the background) telling us conventional powertrain is dead, I have not talked to a single person who says: “We are going to dump the IC Engine and go all electric by 2025 or even 2030.”  There are way too many technical hurdles to overcome.  Will people buy a $65,000 EV?  Sure, but don’t expect them to be sold at volumes anything like we see for a vehicle like the Ford F150.  No, our friend the IC engine is here for a while, maybe forever – they keep getting better, more efficient, and they don’t need a huge infrastructure.  So, while battery and motor technology continue to grab headlines, I think we are getting way ahead of ourselves by junking the IC engine.

All of this being said, we are looking at a very good fourth quarter and an optimistic start to the new year.  Go get em!

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