2025 MANUFACTURING FORECAST

January 16, 2025

CONSUMER BUYING PRICES

2025 MANUFACTURING FORECAST

“It’s tough to make predictions, especially about the future.”? Yogi Berra?

When analyzing the economy and where it's going, I like to take into consideration inflation, tariffs, immigration, employment, interest rates, government spending and black swans. All of these things help us make business decisions.?

The Institute for Trends Research or ITR is a 76-year-old, privately held economic research and consulting firm focused on forecasting market trends and business insights. Their accuracy has been solid for years. For 2024 it was 98.3% accurate covering GDP, industrial production for the U.S., Europe, Canada and China along with retail sales, single family housing and employment.??

ITR forecasts 2025 to be a year of macroeconomic rise and growth picking up more in the latter half of the year. GDP is forecasted at 2.5% for 2025 and 2.1% for 2026. U.S. Total Industrial Production in 2025 will be up 1.4% compared to the sluggish 2024. Most of the recovery trend improvements will become more obvious in the second half of 2025. They also are projecting the rate of rise for GDP (adjusted for inflation) will improve more in the second half of the year.

Key elements forecasts affecting the metals manufacturing economy for 2025 through 2027 from ITR are:

• INDUSTRIAL SECTOR - We expect improving industrial demand. Investment in domestic manufacturing from onshoring initiatives will gradually increase production capacity.

• INDUSTRIAL PRODUCTION - Growth rates are picking up this year and into next and will fall slightly in 2027.

• NON-DEFENSE CAPITAL GOODS NEW ORDERS - Growth rates are picking up this year and into next before falling to about neutral in 2027.

• WHOLESALE TRADE OF DURABLE GOODS - Growth is also better this year and next before falling in 2027. This is due to the positive growth in the electrical, electronics and utility sectors.

• HOUSING SECTOR - ITR predicts a slight housing drop for a short period of time but not as bad as the 2023 dip.

ITR also foresees a tight labor market, limited amounts of interest rate reductions this year, and inflation starting to rise to “uncomfortable” levels in 2026, not including tariff effects.

I am also confident in the forecasting of Jan Hatzius, Goldman’s Chief Economist and Head of Global Research. He, like ITR, is forecasting GDP at 2.5% for this year and believes that Trump will follow through with the 20% tariffs on Canada, Mexico, Europe and other countries along with 10% tariffs on China. Hatzius forecasts that if the tariffs are implemented, inflation will be 0.4% higher than his 2.0% forecast for 2025. It would also lower GDP by 0.2%.

There are always the unknowns, such as Covid 19, Ukraine war, and others. Black swans emerge and quickly change the forecasts. This leads to my favorite acronym:

VUCA- VOLATILITY. UNCERTAINTY. COMPLEXITY. AMBIGUITY

Let’s hope the unknowns are tolerable and that ITR’s accuracy is right again.

INFLATION

Inflation looks sticky

• The Consumer Price Index (CPI) for December rose 0.4% from November and finished the year at 2.9%.
• Core inflation for December, which excludes volatile food and energy, rose only 0.2%, less than expected. This is the first decrease in 6 months. Year-on-year inflation slowed to 3.2%, the first drop since July.
• Personal Consumption Expenditures, PCE, the Fed’s preferred inflation measure for November rose a modest 0.1% and fell to 2.4% in the past year compared to a 2.7%?gain last year. Core prices, which exclude the ever-volatile food and energy categories, also rose only 0.1% in November and are up 2.8% versus a year ago, an improvement from the 3.2% reading for the twelve months ending November 2023. This gives the Fed room to lower rates although much will depend on actions Trump takes with tariffs, immigration and other issues.????
• The Producer Price Index for December “core” producer prices were unchanged from November at up 0.2% but are up 3.5% in the past year, a notable acceleration from the 1.8% reading for the twelve months ending December 2023.

MANUFACTURING

It looks solid!

The Manufacturing PMI??[ISM] for December rose to 49.3 from 48.4 last month and was still below the 50 expansion point. New orders and production gauges were, by contrast, in expansionary territory. Still, none of the six major manufacturing industries recorded in the survey expanded in December, down from two in November.

• ITR is forecasting aircraft growth to continue after Boeing recovers from its strike and supply chain issues in December. The demand for flights continues to grow and production will increase this year and next.
• US non-defense capital goods new orders, excluding aircraft, fell 0.1%.
• Shipments of core non-defense capital goods excluding aircraft, an essential input for business investment in calculating GDP and a leading manufacturer indicator, rose 0.5% in November following a healthy 0.4% increase in October. If unchanged in December, these shipments would rise at a 2.5% annualized rate in Q4 versus the Q3 average. Shipments declined in both the second and third quarters of the year. Hopefully, this upward trend continues.
• New home sales continue to be soft but slightly better. The 30-year mortgage rates have been rising again and are close to 7%. However, lower home prices and an abundance of inventories are helping potential buyers. This will eventually help fuel a rebound in new home sales.
• Car and light truck sales for 2024 were close to 16 million units. Cox Automotive is forecasting sales for this year to be 16.3 million.
• The NFIB, National Federation of Independent Business, reports the Small Business Optimism Index rose by eight points in November to 101.7, after 34 months of remaining below the 50-year average of 98. This is the highest reading since June, 2021. Of the10 Optimism Index components, nine increased, none decreased, and one was unchanged. The October pre-election Uncertainty Index was a record high of 110. Following the election, the Uncertainty Index declined 12 points for November.
• The Shapiro Nonferrous Scrap Activity Index tracks our daily purchases from duplicate accounts across ten locations and a diverse industrial base. Based on our twelve-month trailing average, December was 5% lower.?

CHINA

Tariffs add more problems for China

Not much will change in the Chinese economy until the mammoth housing disaster is solved. It is the proverbial elephant in the room. President Xi Jinping chooses not to to deal with it. We had a similar situation in the U.S. until our housing bubble burst in 2008 and we’re still suffering from its effects.

China is unwilling to cure the underlying issues. There is massive government debt and overvalued housing prices that are being artificially inflated. The property owners are completely aware of the issue and their hands are tied because they are unable to sell at the government’s inflated and set price making the people of China financially insecure.

This has created a consumer confidence crisis. Consumers have reduced their spending. Inflation is barely above zero. Producer prices have fallen for 26 consecutive months and dropped 2.5% year over year in November. China also faces a shrinking population and an unreported high unemployment rate. This deflationary quagmire shows no signs of improving unless President Xi changes course.

China is also facing new tariffs proposed by Trump. According to a Chinese authority, Trump is a China Basher and a Tariff Man. Even so, others in China like him because they believe he thinks economics is everything.

Meanwhile the Chinese PMI and Caixin fell again slightly in December to just above 50.???

METALS

Tariffs and the Midwest Premium

With Trump proposing a 20% tariff on Canada, up from 10%, the Midwest premium has been rising. It is currently about $.24 and is up from $.215 at the beginning of December. A 20% tariff could take the premium close to $.40 per pound. Canada will, of course, respond with its tariffs on our exports. The U.S. exports $40 billion more than we import and this could hurt our economy slightly more than help. There will be much negotiation and noise surrounding this for months. Eventually a compromise will take place. We just don’t know when and the fallout of these actions.

The Aluminum Association released new data showing demand for aluminum in North America (U.S. and Canada) up 4.6% year-over-year in the third quarter of 2024. Sheet and plate product categories showed robust growth near 7%, while several other segments showed declines in Q3.???

Scrap pricing for January is steady. Prime aluminum scrap prices were basically flat while secondary turnings rose. Copper and nickel were off slightly. Stainless prices were also steady. Ferrous prices will be stronger depending on location.?

CLOSING

The news and forecasts for manufacturing look better for this year. There are still lots of moving parts and VUCA. We will see. It's tough to make predictions about the future.?

?

P.S. Maddie Carlson’s Sustainability Insights is another blog we are sending your way. I am so excited about Sustainability Insights as it aligns with Shapiro's purpose of Making the Planet Better Together. Shapiro has launched Circular by Shapiro (circularasaservice.com) to provide the environmental metrics and data needed to reach sustainability goals.

“You’ve got to be very careful if you don’t know where you are going because you might not get there.”.” ? -Yogi Berra