Last week, I had a chance to participate in the Canadian Fluid Power Association’s Annual General Meeting at the Fairmont le Château Montebello in Montebello, Quebec. The event featured a variety of speakers, including Jordan Vickers, senior economist with Eaton Corp., Beachwood, Ohio.
Overall, Vickers painted a semi-dismal picture of the overall economy and in particular for the fluid power market, saying at the end that the overall economy for both the U.S. and Canada will continue to grow but at a very slow pace. However, although recovery won’t be immediate and quick, he did say that the Eaton team of economists expects slow growth to begin next year for the fluid power market.
As Vickers stated repeatedly, many of the troubles affecting the market currently can be traced back to China. “The slowdown in China has affected all commodity prices,” Vickers said. For example, China accounts for one-third of the oil consumption in the world and half of the steel production globally. To compensate for this, China is over-investing in fixed assets and building ghost cities. Finally, Vickers said, “One thing to know about Chinese statistics is that we don’t believe them. We think in 2015 it (the Chinese economy) was basically flat.”
Back in North America, Vickers said that the Purchasing Managers Index indicates that global manufacturing orders are still weak.
“This recovery in the last six, seven years has been the slowest on record,” Vickers said. “The economy hasn’t recovered the same as in other recessions.”
A couple bright spots include the fact that the U.S. Truck Freight Weight was up 4% in March and housing starts are continuing to mover higher, especially in Canada where they are at historical levels while the U.S. is still below.
Vickers said there is not a lot of tailwind in light vehicle sales, and that although they are still solid, they may be near to reaching their peak levels.
Although the world economy is growing at a 2.4% rate, the U.S. and Canada are below that number at 1.6%. Vickers said the hydraulics market in particular is facing a “perfect storm” of weak end markets. And while commodity prices appear to have bottomed, he doesn’t expect to see the markets improve until 2017.
“We don’t think the hydraulic market will snap back real quick like after the 2008-09 recession,” Vickers said.
This “perfect storm” includes a severe decline in Canadian end markets such as oil and gas, construction, agriculture and mining machinery. Stateside, there is just too much mobile equipment out there, which bodes well for the aftermarket but continues to weaken opportunities for OEMs. For example, Vickers said, the ag market oversold. “The agriculture equipment stock is the youngest fleet that’s ever existed,” he said.
Other down parts of the fluid power market include NAFTA Class 8 trucks, which are falling after a solid 2015 and factory equipment.
Vickers concluded with caution, saying that they expect to see this second year of double-digit declines start to taper off. “The rate of decline will lessen as the year continues, break even and then start to incline next year.”
Canadian Fluid Power Association
www.cfpa.ca
Filed Under: Mobile Hydraulic Tips, News
