Industrial Nowcasting Reveals Q2 Stability Amid Deteriorating Q3 Outlook

A recent macroeconomic nowcasting webinar analyzed current industrial performance using over 6,000 global data points, tracking 140 primarily industrial companies to provide insights into sector-specific trends and forward-looking indicators.

Current Quarter Shows Resilience

Despite widespread tariff concerns, Q2 revenue growth appears remarkably similar to Q1 performance across industrial sectors. The nowcasting data suggests industrial revenue growth remains near one of its lowest points in recent history, yet has maintained stability rather than experiencing the sharp deterioration many anticipated. Revenue surprises currently stand at just 14%, representing one of the lowest levels in recent years, and yet offering opportunities for stock-picking in certain sub-sectors with large number of estimates for revenue surprises.

Overall regional Industrial Production indexes reveals mixed but stable patterns, with North America showing slight improvement, Asia Pacific experiencing minor slowdown, and Europe remaining largely unchanged from the previous quarter.

Sector Dispersion Creates Opportunities

While overall growth remains muted, significant variation exists across subsectors. We see large number of revenue surprises (positive and negative) in Transportation, Building Products/Materials, Distributors, Electrical Equipment, and Chemicals.

In terms of changes in organic revenue growth, Building construction demonstrates slight improvement, driven by improved home improvement spending, and drivers for non-resi construction (e.g., non-metallic mineral mining volumes). However, within the Building/Construction sector itself, we see fair bit of dispersion. Metals & Mining shows particularly strong performance, with North American steel prices and volumes increasing substantially. On the other hand, Chemicals face headwinds with growth slowdown compared to last quarter, primarily due to declining North American organic chemical volumes and deteriorating European resin, plastic, and rubber volumes. Transportation sectors also show negative surprises, while paper packaging suffers from declining food volumes affecting packaging demand.

Forward Indicators Signal Potential Deterioration

Looking ahead, Q3 projections appear considerably more challenging. Forward-looking models indicate industrial growth could decline to negative 2%, with materials facing even steeper declines. Supporting this outlook, leading indicators show concerning trends: ISM orders have softened to the 47 range, inventory levels are building in both durable and non-durable goods, and key pricing indices including North American minerals and chemicals are showing growth and demand slowdowns.

If you would like to download the accompanying slides, please visit the AKAnomics website Resource section here.