Industrial companies seem to be trying to avoid talking themselves into a recession, but they can’t hide their jitters. Executives descended on California for Morgan Stanley’s Laguna Conference, and it gave manufacturing CEOs an opportunity to deliver one of the first mass updates across myriad sectors since companies released their second-quarter earnings results. The consensus seemed to be that the uncertainty-fuelled slowdown that caused a bevy of sales disappointments and guidance cuts in July has continued.

But while that trend line hasn’t improved, the slackening in demand isn’t necessarily accelerating sharply, either. Most manufacturers are highly dependent on the last month of the quarter, so there’s still the potential for the winds to shift in September, and no CEO wants to scare off a big customer order by predicting a widespread recession.

“There seems to be a cautious approach by our customers,” CSX Corp. CEO Jim Foote said at the conference. “Whether it’s lumber, paper, steel, plastics, chemicals, auto, you name it.

“It’s just like, everybody is not jumping up and down, ‘Hey things are great here!’ We’re not going off a cliff. Nobody is cutting back on long term capital projects, but everybody has just been very, very cautious.”

It was a sentiment echoed by the likes of Fortive Corp., Honeywell International Inc. and Rockwell Automation Inc. While some companies have announced restructuring efforts to make up for the weaker demand, it’s been fairly incremental at this point, with Rockwell’s chief financial officer Patrick Goris noting that the company is holding off on more structural cost cuts until it gets a better sense of its outlook for fiscal 2020.

We’re in this weird no-man’s-land where there’s still the potential for a concrete, true resolution to the US-China trade war to shift the momentum back into a positive direction. Of course, that remains elusive.


There were gestures of good will on both sides this week: President Donald Trump delayed a planned October tariff increase on roughly $250 billion of goods by two weeks, and China encouraged its companies to buy US farm products, which it will excuse from its own tariff campaign. White House officials have reportedly even discussed offering China a limited trade agreement focused on agricultural purchases and intellectual property protections in an effort to avoid an electoral backlash from the more consumer-facing tariffs set to hit in December.

When asked about a possible interim deal, Trump said, “It’s something we would consider, I guess.” (Visiting the moon is something I would consider, I guess, but it doesn’t mean it’s going to happen.)

A permanent deal

Either way, an interim deal won’t resolve the fundamental issues and leaves the door wide open for a re-escalation of tensions — and tariffs. So I’m sceptical to what extent this would actually remove the uncertainty that’s restraining business investment. In fact, it could have the inverse effect of just prolonging the headaches for manufacturers, while keeping consumers out of the line of fire. While none of the companies I follow outright cut their guidance, 3M Co. seems to have come the closest. CFO Nicholas Gangestad in July had forecast flat to low-single-digit growth in the company’s core sales in the third quarter. He said this week he now expects that to be closer to flat, based on continuing weakness in automotive markets and China.