‘Positive Demand Signals Developing:’ What Data and Executives Are Telling Us About the Industrial Sector
Three’s a trend, yes? If that maxim still holds, 2025 looks set to deliver good things for many U.S. industrial companies.
This week’s headline Institute for Supply Management Manufacturing PMI reading crossed into expansion territory for the first time since late 2022, a noteworthy development in its own right. Also worth calling out: The new orders element of the Index rose for the third consecutive month after it had retreated for seven straight months, suggesting that many manufacturers are coming off trough levels of activity.
Commentary from several executive teams this earnings reporting season backs that up. There’s a growing—although not universal—sense that activity is improving and that companies are making growth and investment decisions that look through the noise around changes in the United States’ tax and/or tariff regimes. For example:
- Four of Dover Corp.’s five reporting segments produced organic sales growth last quarter and total bookings were up 7%. That marked the fifth consecutive quarter of bookings growth, President and CEO Rich Tobin said, and he added that “underlying demand strength has continued across the portfolio into January.”
- Applied Industrial Technologies Inc. President and CEO Neil Schrimsher said his team hasn’t seen quite the same strength in January—policy uncertainty and rough weather in much of the South had something to do with that—but nevertheless thinks “a growth inflection in end-market demand is near” as they see order momentum and sales funnels doing well and clients generally feeling more positive since November’s election.
“Stronger customer activity across the technology vertical is encouraging and a potentially strong growth tailwind,” Schrimsher said. “We also continue to see positive momentum developing across our automation business.” - The leaders of Emerson Electric Co. are forecasting fiscal 2025 underlying sales growth (which excludes the effect of currency movements) of between 3% and 5%, up from 2% in the company’s recently concluded first quarter. Helping drive that outlook is an expected uptick in orders for automation gear and software. COO Ram Krishnan said improvement looks to be widespread and “representative of our customers—the broad-based 35,000 customers—stocking up and distributors and integrators putting stock back in.”
Other surveys are echoing the PMI and these executives in picking up encouraging trends. For example:
- A growing number of companies beyond big, publicly traded corporations are gathering steam: The diffusion index measuring current production as part of the Federal Reserve Bank of Dallas’ monthly Texas Manufacturing Outlook Survey is (except for November’s neutral reading) breaking away from the doldrums of the past two years. The index’s October and January readings were its highest since May 2022.
- Executive teams also are ready to spend again: The future capital expenditures component of the monthly manufacturing poll from the Philadelphia Fed has improved each month but one since July. It now sits at its highest reading since July 2021.
Among the likely beneficiaries of policy changes already announced or expected soon is steel products maker Nucor Corp. CFO Steve Laxton said late last month that, between some deregulatory measures and tariffs—the latter being something other metals executives also have vocally supported—as well as broader reshoring trends, Nucor is in a sweet spot.
“We remain very optimistic about the economic situation [new policies] will create and continue to pull through demand and ultimately deliver higher performances that we’ve seen over the last six to 12 months,” he said late last month.
Not all sunny skies
The vibes aren’t unanimously immaculate, however, and even CEOs and CFOs upbeat about their 2025 prospects have acknowledged that growth is good rather than great. Much of manufacturing—with perhaps the exception of things that touch power sector—has been in the doldrums too long to suddenly snap back. Plus, firms with exposure to automotive production see a sluggish year ahead, with tariff fears adding extra weight.
The leaders of Stanley Black & Decker Inc. and Illinois Tool Works Inc. six months ago said they didn’t see a big spending bounce in the near future. Both groups reported fourth-quarter results Feb. 5 and reiterated those more reticent positions. Stanley President and CEO Don Allan said his team’s outlook for the company’s markets this year is “relatively flat year over year” and his peer at ITW said patience is key.
“Although there are certainly some positive signals in our businesses, the current reality is that we are not yet seeing these reflected in orders,” ITW President and CEO Chris O’Herlihy told analysts.
Those comments came a few days after Parker-Hannifin Corp. Chairman and CEO Jenny Parmentier said the holding company’s leaders are also still waiting for a true turn even if sentiment among its distributors has picked up. The average industrial downturn in North America, she said, is six quarters—and we’re now roughly five quarters in.
“We’re just expecting that this turn is coming, but it's been pushed out another quarter from what we see right now,” Parmentier added.
One source of hope for the factory sector is that it benefits from the strong upswing in business sentiment and ambition since the presidential election. In the latest quarterly CFO Survey from Grant Thornton, 68% of respondents said they are optimistic about the economy—that indicator’s highest reading since the fall of 2021. On top of that, 45% are planning to add to or accelerate growth investments versus just 15% who say they are holding off.
Put another way: If you’re not stepping into the starting blocks for the next leg of the race, there’s a solid chance your competitors have already taken off.
