December 16, 2024

Taylor St. Germain:
Hi, everyone. My name is Taylor St. Germain with ITR Economics, and welcome to this edition of TrendsTalk. It’s nice to be back with you all, and thank you to Mike, my colleague, for covering Trends Talk while I enjoyed some more paternity leave.

A lot of exciting things going on over the course of the past few weeks, and it’s easy to get caught in the weeds, and so today I wanted to really focus on the leading indicator evidence in what it’s suggesting as we move into 2025.

Last week, Mike covered a lot of great information on how to prepare for 2025, and I want to take a slightly more data-driven approach to why do we still see 2025 as a positive time for the economy, especially the industrial economy out of there, and really what I want to focus on is our system of leading indicators. For those of you that are Trends Report subscribers, you’re aware of these leading indicators, but I wanted to detail some of the positivity we’ve seen in most recent months.

The first leading indicator that I want to call out here is the ITR leading indicator. The ITR leading indicator is a proprietary indicator that we developed with a specific target of having a lead time to the industrial economy with a high correlation, high level of predictability. The ITR leading indicator provides an eight-month lead time to US industrial production.

The good news is that the ITR leading indicator has been rising, and with the latest month of data, has continued to rise. So what does this mean? This means this indicator that we developed that has been very reliable predicting cyclicality in the economy in the directional movement of the economy as we move forward continues to suggest that the industrial economy the US economy continues to rise into at least mid 2025. Again, that’s given that eight month lead time. We’re talking about rise through at least into the third quarter of next year. That’s great news and it’s great news to continue to see the leading indicator support our forecasts of positive industrial production growth as we move into next year.

Another indicator I’d love to call out is the total industry capacity utilization rate. Why do we care about utilization rates? Well, when utilization rates are rising, it highlights there’s often more demand and thus we’re utilizing more capacity. And the opposite is true when we see the utilization rates falling or declining, it typically means we have some excess capacity or that there’s weakening demand. The good news is that with the most recent data, fourth quarter data that we got for this utilization rate, we’ve continued to see rise and we’ve seen consecutive months of rise now from this utilization rate.

So I know we were in a little bit of an excess capacity, weak demand situation, as we look six, nine months back in this utilization rate, however, it’s rising and it’s been rising. And this is a seven month leading indicator. So it’s suggesting that we see the industrial economy rising through the first half of next year. This is good news. So we’ve got our ITR leading indicator rising, we’ve got capacity utilization rising, meaning we’re getting busier as businesses.

And then the last indicator I wanted to call out is the ISM purchasing managers index. We look at the 1/12 growth rate, that 1/12 growth rate gives us a 12 month view into the future. And this was one of those indicators that caused a little bit of hesitation among folks reading the Trends Report because we had this nice rise in the purchasing managers index. But then before election time, we saw a little bit of a tick down. And of course that has forecasters like us and clients that are looking at that indicator and at the Trends Report saying, is this rise in 2025 actually going to come to fruition given some of this retreat in the purchasing manager’s index? Well, the good news is that the purchasing manager’s index, despite those couple of months before the election where it turned down, has resumed its rising trend. And that is great news. That gives us confidence that again, as we look into this indicator, gives us a view into the second half of 25, it’s likely that we continue to see this rise.

So again, the reason I share this more data-driven trends talk with you all today is to highlight that the majority of the leading indicator evidence, I know I only shared three with you today, but the majority of the leading indicators that we’re looking at as forecasters and economists here at ITR continue to suggest optimism for 2025, increasing demand. And for most of you out there in the industrial economy, finding yourselves busier and back in that positive. growth territory for 2025.

So I think it’s always important to take a step back and look at what the data, what the math, what the correlations are telling us. And they’re telling us we should be still quite confident that the industrial economy is going to grow as we look at 2025.

I hope you found this information useful. I know many of you are planning for 2025 right now. And again, let us know how we can help. I know this is a busy time of the year as we’re setting budgets and that’s what we’re here for. And we’re also here for the long-term as well. I wanted to shout out that we have our next 2030 webinar coming up with Brian and Alan Beaulieu. And we’re also doing a lot of work individually for businesses who are putting those five 10 year forecast together as they plan for those tumultuous 2030.

So let us know how we can help. We have a lot of resources for you. We know this is a very busy time of the year for businesses. And that’s really where we at ITR thrive. Thanks for joining me on this episode of TrendsTalk. Please like and subscribe to TrendsTalk wherever you listen to your podcasts and I look forward to seeing you all in the next one. Take care for now. Thanks for watching. We’ll see you next week. Bye.