Rating | Industry Sector |
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| | Energy: |
| Petroleum Products: Oil prices surged to near $100 per barrel in early November on demand and dollar fears before receding. This latest run-up has approached the record real-dollar levels recorded in the 80's. While some of the recent bounce in oil may be over blown with soon prices moving lower, Global Insight's assessment of production costs has caused us to lift our near-term outlook $5-$10/barrel; we now see prices averaging above $75/barrel. |
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Stable | Natural Gas: In contrast to oil, natural gas prices remain benign. Storage levels are high, the weather to date has been warm, and LNG imports have been strong, the combination painting a good supply side picture. There are looming worries, however. Canadian production is falling leaving less gas for export. And LNG imports are likely to temporarily decline because of diversions to Europe and Asia this winter where prices are higher. Both factors will be supportive of prices over the next six months. |
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Stable | Wages: Recent job growth has been more robust, and while labor markets are relatively tight, sub-prime and recession fears help to curb wage growth. Recent productivity figures showing 4.1% growth in Q3 bear watching – we believe they are an anomaly. The Fed will be watching compensation quite closely over the next six months – the chief threat to top-line inflation remains in labor markets. |
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| Benefits: Benefits costs will continue to decelerate as contributions to benefit trusts fall in response to falling profits. In addition, employers continue to shift health expenses not only to individuals, but to unions as well. |
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Stable | Iron and Steel: Steel prices have stabilized because of quick cuts in production that have brought inventory quickly in line. Imports are a worry for the new year. High shipping rates and a weakening dollar signal a drop in imports – which could give domestic mills some pricing leeway. |
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Stable | Nonferrous Metals: Although a decline in the dollar is helping to support primary metal prices, a weakening demand outlook and accelerating production growth point to more balanced market conditions. Ultimately this shift in fundamentals will send prices lower. |
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| Chemicals & Allied Products: Recent strength in energy prices is providing chemical producers with cost induced justifications for upward pricing moves in the fourth quarter. Reasonably good end-markets globally will allow many announced increases to stick. |
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Stable | Building Materials: Weak housing construction will hurt materials tied to residential markets, but growing nonresidential construction limits the damage. Lumber prices have hit bottom, but prices for wallboard and wiring products will see further corrections. Construction steel prices, however, are headed higher. Cement prices remain relatively strong in spite of falling shipments because of clinker production cuts and lower imports. |
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| Electronic Components: Excess inventory, reflecting abundant capacity, and continued capital equipment expenditures will ensure softness in average selling prices. Price declines will continue through year-end though the pace of the retreat is slowing. DRAM prices should stabilize in the next six months. However, outright increases aren't anywhere in the forecast. |
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| | Machinery and Equipment: |
Stable | Electrical: Healthy end markets will persist into 2008, with demand related to utility and nonresidential investment spending supporting the industry. Export markets continue to stand out. We do expect order backlogs to begin coming down, if ever so slightly. (Anecdotes suggest that they are.) Some relief in input cost pressures will have helped to slow the pace of price escalation – a trend we see continuing. |
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Stable | Non-Electrical: Domestic demand is expected to falter over the near-term in the face of sluggish final domestic demand and downward pressure on profit margins. In contrast, strong growth in key foreign markets and the weak dollar will continue to bolster exports. With this as a backdrop, we expect price escalation to remain quite modest over the next few quarters. |
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| Transportation Equipment: With weakening sales, auto and truck manufacturers are continuing to inch up incentives. But there is nothing to suggest any quick turnaround; hence, we expect aggressive incentives and rebates to remain the norm. Year over year, the CPI for new cars and trucks has been falling at a rate of 1% for about the last 18 months, a decline likely to be matched in 2008. The demand for rail and on-road equipment will remain quite sluggish well into 2008 suggesting little upward pressure on new equipment prices. |
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| Transportation and Logistics: The nation's freight pool has been shrinking over the past year with modest declines reported in domestic rail, truck, water, and air traffic. Freight traffic is expected to continue to limp along into 2008. However, sky-high fuel prices will be putting upward pressure on freight rates and should result in some rate hikes sticking in the months ahead. Once fuel prices begin to ease, escalation rates should follow suit. As we move through the second half of 2008 freight traffic will be gaining ground, suggesting renewed upward pressure on rates. |
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| Paper and Packaging: Pulp prices continue to inch higher steadily and persistently. Supply continues to be well managed with the strength of the Canadian dollar reinforcing support U.S. pricing. |
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