Data from the material handling industry group MHI showed contractions in new orders, unfilled orders, inventories, exports, and capacity utilization in September 2024. On the upside, shipments and overall business activity expanded. Plus, future new orders expanded, revealing potential upside future potential in the year ahead.
Material Handling Industry Data
Some U.S. industrial and manufacturing economic data have been mixed or weak recently, including durable goods orders and the ISM manufacturing index. Material handling data also falls in the mixed-to-weak data category following the September 30 release of the MHI Business Activity Index by Prestige Economics — known in shorthand as the MHI BAI.
The material handling industry is comprised of manufacturers, technology providers, and other suppliers who provide the hardware and software to move goods through the U.S. and global supply chains. The data in the MHI BAI comes from leading executive members of MHI, which is the largest material handling, logistics, and supply chain association in the United States.
In September, data collected from MHI executives reflected more weakness than in most MHI BAI reports with monthly contractions in new orders, unfilled orders, inventories, exports, and capacity utilization. Meanwhile, there were expansions in shipments, future new orders, and overall business activity.
For the economy, this data should be watched closely. After all, weakness in material handling could imply that aggregate economic demand is slowing. Despite slowing new orders, shipments and future new orders have been solid. However, if those series were to weaken, it would be a bigger cause for concern.
Falling New Orders But Expanding Shipments
In the MHI BAI, series readings above 50 indicate that a majority of the respondents reported increased monthly activity, while readings below 50 indicate a majority of respondents reported decreased activity.
Over the past two years, MHI BAI new orders have been weak, but shipments have been expanding. Based on a deeper assessment of the data, the relatively persistent strength in shipments for material handling companies appears to be a function of companies burning off the backlogs and WIP inventories that rose significantly in the wake of the COVID pandemic.
In September, 42% of respondents reported monthly expansions and 58% reported monthly contractions. More importantly, new orders have been weak recently, expanding in just 12 of the past 27 months. Unfilled orders have also been weak recently, falling to a new record low in September after expanding only seven times in the past 27 months. Inventories have also been weak, expanding just twice in the past 22 months.
Despite frequent contractions in new orders, unfilled orders, and inventories, shipments have expanded in 30 of the past 36 months. In September, 54% of respondents noted monthly expansions, while 46% reported monthly contractions.
The ongoing weakness in new orders, unfilled orders, and inventories against the relative strength in shipments appears to indicate that companies have been burning off their backlogs and running down WIP inventories.
Future New Orders Convey Strength
MHI BAI future new orders have also been strong and were at a record high of 100% in September. This percentage shows that every single respondent expects future new orders will be higher in 12 months. The September three-month average for the future new orders series accelerated to 93%, while the six-month average was unchanged at 91%. Both of those averages are exceptionally high.
With high future new orders expectations and shipments still strong, some critical positive dynamics remain in play for material handling despite weakness and contractions in a number of series. However, if shipments were to weaken or if future new orders expectations were to fall, the outlook for material handling and the overall economy would soften.
Responses from MHI BAI are collected from approximately 30 leading executives in the U.S. material handling industry who sit on the MHI Board of Governors and Roundtable Advisory Committee.
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