A Cloudy Crystal Ball

By now, most of us have heard from various Fortune Tellers (often called economists, analysts, think tanks, investment bankers, politicians, media pundits, and so on) about the 2023 economy, with prognostications ranging from dire warnings of an economic collapse to the soft landing recession scenario. No one really knows, but many try to forecast based on all the moving variables that comprise the U.S. economy. Our reading is a bit more optimistic. Although the crystal ball is cloudy, January and February are absolutely clear – the economy, for most sectors, was softer yet encouraging for March and April.

Looking forward, we see some bumpiness for manufacturing, possibly through the third quarter, followed by more favorable economic conditions – unless – the Fed pushes rates too high, or some black swan event occurs somewhere in the world that creates a global rogue wave, perhaps from Eastern Europe or Taiwan. As we move through March, the factors that typically signal a recession are not present. The most significant one would be rising unemployment, but while there have been some layoffs in the Tech sector, there are still over 700,000 open jobs in manufacturing and millions in the Services sectors. Manufacturing resists laying off skilled workers that were so hard to find.

U.S. consumers haven’t run out of spending steam yet, despite rising prices in food, and moderately higher fuel costs, both for home heating and gasoline. The harsh winter that would have created an advantage for Russia as Europe’s leading natural gas supplier wasn’t brutal, allowing European businesses and consumers to maintain solid import demand for U.S. goods and services. The closures of cities or provinces in China that disrupted supply chains created new demand for Made in the USA goods, resulting in capital expenditures for new U.S. factories, and updated equipment for greater capacity, with the vexing problem of staffing that is keeping wage rates high amid competitive demand for skilled workers. The pandemic, seemingly subsiding after spinning the world on its head, also seems to have thrown the usual variables forecasters use to predict economic twists and turns into the fan.

As a forward-looking, forward-thinking resource for the manufacturing industry, Manufacturing Outlook has remained a bit steadier, with less emphasis on the OMG scenarios and more focus on the facts. This is reflected in each of the Outlook sections within the publication. From our perspective, the cloudy crystal ball foretells fair skies ahead for 2023. Then, of course, the political season begins in 2024, which tends to upset the mood of the country as competing politicians attack each other to vie for higher office, but that is a story for later this year if it impacts manufacturing pro or con.

One exciting development to watch will be the supply of computer chips as more foundry and finish capacity come online. America, and much of the world, has adjusted to working remotely, so at the moment, there seems to be a bit of a glut of chips for personal computers and hand-held devices as demand wanes in a cooling market. That will move automotive back to the front of the line with their chip orders over the coming months, and the inventory of vehicles with all the digital bells and whistles will begin to expand on dealer lots.

Keep an eye on lithium, a key component for EV batteries. There will be worldwide competition for sources of supply, and EV manufacturing may hit some constraints as production demand eats into lithium availability. The black swan in this scenario? A technological development in battery storage and efficiency that diminishes or displaces the need for lithium, and possibly for some rare earths, as well. With China controlling 80% of rare earths, and operating as the biggest competitor and consumer of lithium, some technological innovation in batteries will be a good thing.

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Lewis A. Weiss, Publisher

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