Has the Economic Tide Turned?

2018 experienced a year of pump priming unlike any other during an economic growth period in our lifetimes. The US tax bill made significant revisions to the tax code, slashing taxes for (higher-income) individuals and corporations. The corporate rate alone was cut 14 percentage points, to 21%.

Moreover, taxes on profits held by US companies abroad were cut by 20 percentage points or more. That facilitated the repatriation of those cash reserves — estimated by Bank of America at $3.5 trillion, or more than 1/5th the size of the annual US GDP.

As those gains worked their way through the system,┬áthe effects included corporate buying sprees that topped anything we’d seen in at least a decade. Business capital investment budgets swelled, and suppliers’ bottom lines ballooned.

The bloom is off the rose, I’m afraid. While not a free fall, the economic reality today is that buyers are cooling off and budgets are returning to more conservative positions. Several EMS firms are guiding for slowing business conditions, and now fabricators are reporting the same. End-markets like automotive are leveling, which will have a ripple effect across the entire supply-chain.

No one likes a cynic, especially so close to the holiday season. But my advice is to go easy on the parties while aggressively going after market share. A large customer base is the best hedge against a slowing economy.

 

 

US Economy Heats Up

More good news on the US economy today, as the Commerce Department’s preliminary factory data for September found new orders for manufactured goods rose for the fifth time in six months, increasing $3.3 billion (0.9%).

This comes a day after the Institute for Supply Management’s monthly purchasing managers index rose again and at a faster rate than expected.

And while ISM New Orders index slipped a bit, that index is at 58.5%, suggesting more good news ahead.

The economy would have to catch fire like celebrity chef Rachael Ray in an oven to make up for the pain we’ve gone through the past year. But it’s a start.