Whether you closely follow the stock market or only occasionally peek at your 401(k) balance, it’s been a rough ride over the last couple months. The Dow Industrials, S&P 500 and other major indices fell into “correction” territory—off more than 10% from highs of a couple months ago. Even worse is the beating fluid power manufacturers and OEMs are experiencing.
No one knows whether more bloodletting or a major rebound is in the offing. But most experts point to three culprits underpinning the turmoil: slowing economic growth in China, fears of rising interest rates in the U.S., and slack demand for commodities that range from corn and soybeans to oil and coal.
Especially on the last point, that translates to bad news for manufacturers of everything from hydraulic pumps to agricultural and mining equipment. Economist Eli Lustgarten of Longbow Research, a featured speaker at NFPA’s Industry and Economic Outlook Conference (IEOC) in August, agrees that fluid power demand is falling in 2015 due to sharp declines in commodity sectors and sluggish economic growth.
Virtually all end markets for commodity-related capital spending are under significant pressure, he said. Prices of industrial metals like copper and iron ore, currently at five-year lows, are tied to economic growth in China and India. And opposition to coal in power-generation markets continues to grow. In turn, mining equipment production and sales are soft.
Excellent global crops the last two years have depressed agricultural commodity prices, meaning less cash in farmers’ pockets and less demand for ag equipment. Finally, oil and gas investments continue to spiral downward as crude prices remain in the doldrums. As a result, said Lustgarten, 2015 production is down 45% for large ag equipment, 50% for mining equipment and 55% for China construction equipment, versus recent market peaks.
The depressing news is directly reflected in the stock market. Ag leader Deere is down 19% from its 52-week high. Caterpillar and Komatsu, with sizeable footprints in mining, dropped 28 and 33%, respectively. And mining-equipment maker Joy Global has declined nearly 70%. Fluid power stalwarts Parker Hannifin (-24%) and Eaton (-28%) likewise feel the pain.
Nonetheless, there may be a silver lining. For those with a long-term view, many consider stocks to be oversold. Fluid power markets may not be going gangbusters, according to economists at the IEOC, but they should hold their own with slow and steady growth. No one predicts the demise of oil, steel—or fluid power, for that matter—anytime soon.
As Warren Buffett once famously said, “Be fearful when others are greedy, and be greedy when others are fearful.” With the market beat down, now may be a good time to bet on the long-term prosperity of the fluid power industry.