The IRA is crowding in private investment
Speaking of the Inflation Reduction Act changing business calculations for clean tech firms: Comments from CEOs in recent earnings calls suggest that the IRA is already crowding in private investment in the renewable energy and industrials space.
Take Ohio-based flat-rolled steel maker Cleveland-Cliffs. Its CEO said last month that money from coming from the IRA “will support more and more investment” in steel production for customers in the wind, solar, and EV charging infrastructure businesses. Similarly, North Carolina steelmaker Nucor sees the IRA driving up to three million tons of additional annual steel demand for clean energy projects. And long-duration storage system maker ESS Tech says the IRA has “definitely juiced up the number of customer conversations”
Industrial manufacturers and engineering firms are getting busy, too. Texas-based Flowserve sees growing demand for its industrial machinery like pumps and valves to support clean energy pipelines worldwide. ESCO Technologies, which makes highly engineered industrial products to support electric grids, sees “very, very robust investments” from utilities and renewables customers. Willdan, which provides energy and engineering services across the US, says IRA funding is helping cities pay for major projects.
US prices are lower, but still high
The latest US consumer price index data give some reasons for optimism. Inflation has slowed for ten straight months. The CPI rose 4.9% in April on the year, down from 5% in March. Excluding energy and food, the core CPI rose 5.5% on the year, down from 5.6% the prior month. That’s all good news, and could strengthen the case for the Fed pausing its rate hikes. Wall Street definitely seemed to think so. But prices are still high. And structural factors, most notably disruptions from climate change and an ageing population, could keep prices high for years to come.
US CPI, 12-month percentage change
Source: US Bureau of Labor Statistics
Sputtering industrial momentum?
Germany and China—both industrial powerhouses occupying critical nodes across key supply chains—are showing signs of economic weakness and slowing manufacturing activity.
Germany’s factory output fell 3.4% in March over the prior month. It was a far steeper decline than the 1.3% drop economists had forecast, and marked the largest drop in a year. Recession risk warning signs are flashing red.
And in China, disappointing trade data points to an elusive and sluggish Covid-reopening recovery. Imports fell sharply in April, contracting 7.9% on the year. The fall in inbound shipments suggests weak domestic demand, but also likely faltering momentum among its trading partners given that China re-exports some of its imports.
Meanwhile, though Chinese exports grew 8.5% last month on the year, the increase is skewed by the fact that much of China was locked down in April 2022. Plus, a 41% year-on-year slump of domestic excavator sales, and a deceleration in excavator exports, point to slowing economic activity both in China and globally.