ITR Economics' Chris Steele on 2019 Industrial Recession
Chris Steele at ITR Economics recently gave an update on their commodity and economic outlook with FS Insider. They expect a slowdown around the 2019 timeframe and commodities to generally start peaking out in the months ahead. Chris also explained their view on steel tariffs and why they're ultimately a net-negative for the US economy based on steel-producing vs. steel-consuming manufacturing jobs.
Recession Not Until 2019
According to ITR's four-phase business cycle framework — phase A (recovery), phase B (acceleration), phase C (slowing), and phase D (recession) — Chris thinks we’ll enter a phase D recessionary-like environment sometime in 2019.
ITR's proprietary leading indicators suggest a pickup in growth rates into roughly the third quarter of 2018, at which point we'll be encountering a tipping point where the US economy is transitioning to the backside of the business cycle.
“That's going to take us into early 2019 and here is where the US economy GDP as a whole is going to diverge from the industrial sector,” Steele said. “What we're looking at right now in 2019 is an industrially based recession occurring in about the second to third quarter and persisting through most of the latter part of the year.”
This won’t lead to a technical recession in US GDP, however, and we should see recovery and acceleration into 2020.
Where Will This Leave Commodities?
We hit a very deep low in copper, steel, aluminum, oil, gas, zinc, and many other primary metals around 2016-2017, with a healthy rebound since that's starting to taper off now.
In a broad industrial sense, ITR expects to see commodities rising slightly through the second quarter before flat-lining or declining a little bit in the latter half of the year, with the exception of steel due to the burgeoning trade war with China, he noted.
The threat of tariffs and China’s role in the world economy is likely to play a large role in the industrial sector recession, Steele said. Since China is far and above the largest consumer of commodities in the world, whenever the manufacturing or construction sectors in China are hit, we can be pretty certain commodity prices are going to take a hit as well.
The tariffs ultimately will support the steel industry, to the detriment of others within the economy, he said, as 150,000 people employed in the US work in steel production, but nearly 6.5 million people are employed in steel-consuming manufacturing jobs.
“The fact of the matter is that these tariffs could be very tough for the ‘Made in America’ brand over the next year or two,” Steele said. “The majority of the world's major industrial countries are moving toward that business cycle peak. By the end of the year, by early 2019, the business environment and the demand for raw materials simply aren’t going to be where we're seeing it right now.”