What American recession?
The manufacturing economy is on a solid footing and activity is expected to pick up later this year, senior executives in the space told Yahoo Finance exclusively at the Goldman Sachs Industrial and Materials conference this week.
“Very optimistic,” Goldman Sachs analyst Joe Ritchie told Yahoo Finance when asked to sum up the atmosphere at the two-day event in New York City. “We are at the beginning of building a very important infrastructure in the United States that some might call the renaissance of manufacturing in the United States.”
Several big catalysts are on the horizon for the industrial patch, people at the event told Yahoo! finance.
The first is unprecedented investment by the government in the form of the new Inflation Reduction Act (IRA). The other is to re-support initiatives – notably the Chip and Science Act – aimed at boosting domestic output by boosting the labor market.
These factors do seem to be driving the recovery in industries fortunes in the second quarter.
“Demand from our larger customers is growing,” Michael Battles, co-CEO of Clean Harbors (CLH), told us. Clean Harbors is a waste management company serving the majority of the Fortune 500.
Added Battles: “They’re doing more production in North America…and we’re seeing that volume come into our network.”
Truckbroker RXO (RXO) CEO Drew Wilkerson sees a similar type of demand rebound.
“It’s a challenging macroeconomic environment right now. … But there are reasons for optimism going into the second half of the year,” said Wilkerson.
“Retail and e-commerce customers are talking about how they restock their inventory and we have to get the orders out to the end consumers,” Wilkerson added.
These green shoots come as the US economy is seeing a meager 1.1% annual growth in gross domestic product (GDP) in the first quarter. In 2022, GDP will expand by 2.1%.
If you look at the price action in the industrial park, some investors are starting to take a stand for the no-recession scenario. Focus on some investors.
For the year to date, Clean Harbors stock is up 22% on the back of a string of strong quarterly results, while RXO stock is up 11%.
And after four consecutive weeks of outflows, the industrial sector recorded its first inflows in more than a month, according to new data from Bank of America.
However, the closely watched Dow Average Transportation (^DJT) tells a slightly different story.
The transportation measure – seen by many as a leading indicator of the state of the US economy given that the 20 stock index is made up of airlines, trucks, railroads and delivery companies – has underperformed the broader market over the past six months amid a slowdown. Economic growth and recession fears. It’s down more than 5%, compared to a drop in the Dow Jones Industrial Average of nearly 2%.
Big-name industrial companies like Caterpillar (CAT) and John Deere (DE) have fallen more than 10% in the past six months.
But if you’re willing to brush those warning signs aside and bet on an under-the-radar industry renaissance, chances are.
Go with industrial powerhouses that play in smart infrastructure like Johnson Controls (JCI), says Goldman’s Ritchie.
It shows that supply chain pressures are easing, and it’s having a “really strong impact on growth.”
Sean Smith He is a broadcaster at Yahoo! finance. Follow Smith on Twitter @tweet. Deal tips, mergers, activist positions, or anything else? Email seanasmith@yahooinc.com.
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