2018 Annual Business Products and Services Industry Spotlight
INSIGHT ARTICLE |
Sentiment across the industrial products (IP) space remains stymied by macro-level uncertainties around trade policies and tariffs, which have evolved from a handful of products to include roughly 25 percent of all goods shipped from China. In turn, products shipped from the US have faced stiffening tariffs in China. These forces, combined with rising interest rates and a consequent increase in the costs of doing business, have introduced a level of uncertainty for manufacturers not seen in some time. By RSM’s estimation, rates at or above 3.5% could inhibit small and medium-sized businesses in the IP space from implementing countervailing solutions, including widespread adoption of automation to help them match revised profit expectations. Meanwhile, heightened valuations for those companies have contributed to a multi-quarter decline in M&A volume, now at its lowest level since 2013.
Financial and strategic investors will continue to confront unpredictability across the IP space for the foreseeable future. Not only will tensions around trade and tariffs remain persistent sources of uncertainty, interest rate increases appear poised to hinder some of the more ambitious plans to incorporate production improvements among manufacturers. Despite a persistent need to innovate while still being flush with cash, however, strategics have ceded ground to financial buyers of late. While rising wages have created a cautious sense of optimism around the overall state of the US economy, whispers of a recession are growing louder as growth in other corners of the globe continues to falter. A steadily increasing cost of labor in the US will make the need to incorporate automation at scale more urgent in the coming year.
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