US & Global Economic Impact Analysis and Forecasts

Freedonia analysts and economists are sharing their insights on how major events are impacting different parts of the US and global economies.

It’s Not a Game: Chip Shortages Stall Auto Industry Recovery

The global auto industry, like most manufacturing sectors, was hit hard in the early months of the pandemic in 2020, with plants closing and sales plummeting. However, sales picked up faster than expected, and as 2021 approached, the promise of new vaccines and global economic improvement provided hope that industry growth would accelerate.

However, auto producers worldwide are now having to slow or stop production again due to a shortage of computer chips, which could have a ripple effect throughout the automotive supply chain.

Motor vehicles are increasingly driven by electronics, but auto production is just one outlet for semiconductor chip producers, whose businesses are increasingly driven by consumer electronics and the dispersion of smart technology. As auto production dropped dramatically in early 2020, chip suppliers switched their focus to producing chips used in gaming systems, smart phones, laptops, and other products high in demand by consumers forced to stay at home. When auto producers ramped up output again, chipmakers began to have trouble meeting demand, creating a challenge that is expected to continue well into 2021.

Will a shortage of chips halt the global auto industry recovery? According to Thomas Bowne, Chief Economist at The Freedonia Group, the impact on total annual output expected for 2021 will likely be negligible. “The market allocation by price mechanism is a wonderful thing. The ‘shortage’ of chips will result in motor vehicle manufacturers perhaps having to spend more than they budgeted for motor vehicle production in the short term. But as global motor vehicle demand bounces back in 2021 and production increases accordingly, chip manufacturers, seeing a good opportunity for higher profits, will likely switch course to meet that rising demand in the motor vehicle segment.”

Healthy motor vehicle production is essential to the outlook for growth in many other industries worldwide, including those that produce components such as batteries and filters, as well as coatings, adhesives and even items like professional power tools used on manufacturing lines. Automotive applications account for a large share of demand for many of these products. For example, the industry accounts for over a third of all demand globally for both batteries and filters. 

For more information and a discussion of market opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research related to the auto industry, including Global Batteries, Global Filters, Paint & Coatings, Global Thermoplastic Elastomers, Global Polyolefin Elastomers, Global Adhesives & Sealants, and Power Tools (an update of Global Power Tools is coming soon). Freedonia Focus has also recently published Electronic Components: United States and an update of the Semiconductors: United States report is coming soon. Freedonia Custom Research is available for questions requiring tailored market intelligence.

  Automotive & Transport      Covid-19      Machinery & Equipment    

Manufacturing Finishes a Bad Year on a Good Note

When the COVID-19 first struck in early 2020, there was an extreme and near immediate negative impact on the global manufacturing sector. Uncertainty on how best to navigate this new reality, and on how long the world would be in the grasp of the pandemic, resulted in the temporary closure of nonessential businesses and a slowdown in general business investment. By April 2020, the PMI – a measure of economic trends in the manufacturing and service industries – reached its lowest point in a decade.

However, the world started to get back on its feet a few months later and steady gains in manufacturing activity through the second half of the year culminated in a December measurement that, in many countries, was the highest mark in years. Through most of 2020, the global manufacturing sector has shown that it was able to withstand many of the disruptions caused by the pandemic, though it was not a smooth journey:

  • The service industry has not recovered to nearly the same extent as manufacturing. Travel in particular – both business and personal – is still struggling, which has continued to hurt airlines, hotels, and restaurants, as well as industries that supply them.
  • Even within the manufacturing sector, the size of the recovery has varied considerably. In December, for instance, the Printing and Nonmetallic Minerals Products industries in the US contracted. Consumer goods producers also registered a weak December as consumer spending slowed.
  • Although it did show a recovery from the sharp drop in manufacturing activity early in 2020, the manufacturing sector in Japan continued to register contractions through nearly all of 2020 before flattening in December.
  • Input prices have risen sharply in some industries as supply chains evolved, production was shut down or limited by physical distancing, and demand changed.

One of the bigger issues early on in the pandemic was the disruption of supply chains as countries enacted different measures to combat the spread of the virus at different times. While there remain sporadic supply chain issues, the US has generally reported that there is stability among inventory levels and that supply chains are satisfying at least short-term demand requirements in many industries.

However, this improvement could still be upset by a resurgence in coronavirus cases if the rollout of the COVID-19 vaccine falters, upsetting normal supply chains and the ability of manufacturing facilities to operate at full capacity. In the second half of 2021, however, many of these challenges to manufacturing could be resolved if much of the world has the chance to be vaccinated and restrictions to movement and operations are lifted.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including Global Material Handling Equipment, Global Packaging Machinery, and Global E-Commerce Packaging. Related reports from Freedonia Focus include coverage of various US manufacturing and service industries, such as Fabricated Metal Products, Steel Mill Products, Audio & Video Equipment, and Employment Services. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Automotive & Transport      Construction & Building Products      Consumer Goods      Covid-19      Food & Beverage      Industrial Components      Machinery & Equipment      Packaging    

Continuing Strength of Pallet Market Spurs Acquisition

The announcement by UFP Industries (UFPI) – a leading supplier of building materials and pressure-treated lumber – that it will purchase PalletOne is not only a way for UFPI to bolster its existing product portfolio, but also to enter in a new market segment that has shown growth during the COVID-19 pandemic – pallets.

PalletOne manufactures wooden crates and industrial packaging products, and also pressure-treats wood lumber, helping to mitigate degradation caused by exposure to the elements. UFPI also makes industrial lumber products, so the purchase of PalletOne will boost its capacities in that market segments.

It is PalletOne’s important role in the new pallet segment that is the key component of this transaction, though. Traditionally, only a few products (such as pharmaceuticals) were shipped on new pallets, with reclaimed pallets – pallets which have been used multiple times – accounting for the vast majority of trips. However, the COVID-19 pandemic has spurred demand for new pallets. Those involved across the supply chain – such as manufacturers, shippers and warehousers, and retailers – have identified used pallets as a potential source of COVID-19 infection. While the risk of transmission is low, used pallets are frequently handled as products are unloaded from and loaded onto them.

In contrast, new pallets – such as those made by PalletOne – see much less use and thus are seen as a safer alternative to reclaimed pallets. Even as the COVID-19 pandemic recedes and more people are vaccinated, it is expected that (as with so many other things) people will be reluctant to go back to the old ways of handling products, and will continue to specify new pallets when shipping items as food and consumer goods.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including Pallets and Global Pallets. Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Covid-19      Machinery & Equipment      Packaging    

Ultracold Freezers Become a Key Component of the Global COVID-19 Vaccination Campaign

While annual reach-in and walk-in freezer demand exceeds $5 billion globally, ultracold freezers have historically been a niche product used primarily in hospital, pharmaceutical, scientific research, and university settings. The global COVID-19 vaccination campaign, however, has brought ultracold freezers to the forefront. Pfizer’s vaccine – which is among the first to become available globally – must be kept at minus 70 degrees Celsius during both the storage and distribution process. While many major hospitals already have ultracold freezers, most other medical facilities lack such machines, which will hamper vaccination distribution campaigns in many parts of the world.

In response, governments and businesses have placed orders for ultracold freezers, making them a highly sought after item. Ford, for instance, has acquired ultracold freezers to vaccinate its employees. As vaccinations accelerate globally and Pfizer distributes its vaccine, the need for these machines will grow exponentially and make it hard for suppliers to keep up with demand. Recent developments have created immense opportunities for manufacturers such as US-based Thermo Fischer Scientific, which has seen demand for its ultracold freezers surge so much so that it had to make adjustments to its supply chain.

In the near term, the global COVID-19 vaccination campaign will continue to have a profound impact on demand for ultracold models specifically and freezers more broadly. Vaccines similar to the one being developed by Moderna must also be kept frozen, albeit at temperatures that are not quite as cold.

The different storage requirements of these vaccines are likely to force states and vaccine coordinators to be creative in their distribution strategies. For instance, Smithfield Foods – a leading pork producer – has offered to make excess space in its freezers available to store vaccine doses and the need for dry ice is increasing as states such as Ohio use it in its distribution plans. Densely populated areas or locations near some existing stock of ultracold storage freezers will more easily be able to use the Pfizer vaccine. Areas with smaller populations or limited (or no) access to ultracold storage are more likely to prefer the Moderna vaccine, as that will ease some of the delivery burden. This assumes that both vaccines will receive emergency approval, a decision on which the US is still waiting.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, including Commercial Refrigeration Equipment and Global Commercial Refrigeration Equipment (coming soon). Freedonia Custom Research is also available for questions requiring tailored market intelligence.

  Covid-19      Machinery & Equipment    

Appliance Manufacturers’ Overcoming Supply Chain Issues to Reduce to Backlogs

In a normal year, appliance companies are able to capably estimate how many of their appliances will be sold. This allows them to manufacture and maintain an appropriate inventory sufficient to supply retailers, distributors, and end users. This approach to supplying appliances, however, had a rather large wrench thrown into it in 2020: appliance usage was up (more home cooking, more frequent opening of refrigerators) and supply was cramped by manufacturing shutdowns and shipping challenges related to the pandemic.

Unsurprisingly, existing inventories were quickly emptied to satisfy the first wave of orders. Since then, appliance manufacturers have been playing catchup, as temporary disruptions to typical manufacturing operations created order backlogs stretching as long as 3-4 months.

Delays are not just isolated to the US either. Australia, for example, is also experiencing a shortage of appliances, which is made worse by the fact that most of the appliances sold in the country are imported. Many of these imports originate in Southeast Asia, and increasing COVID-19 cases in Malaysia and Indonesia threaten to create further supply disruptions.

GE Appliances was already planning an overhaul of its supply-chain in 2020 and expedited that effort after the start of the pandemic. Its investment has resulted in notable improvements in being able to track stock levels at distribution centers, shipment information from manufacturing sites, and to more quickly solve supply disruptions. At a time when nearly all appliance orders require some wait, minimizing disruptions is essential.

For more information and discussion of opportunities, see The Freedonia Group’s extensive collection of off-the-shelf research, particularly Global Major Household Appliances. Freedonia also offers an expanding catalog of COVID-19 Economic Impact reports, which highlight how various industries are responding to the current crisis with a comparison to recent recessions. Freedonia Custom Research is also available for questions requiring tailored market intelligence.