Supply and Demand Image

January 14, 2014 - An industry report showed that U.S. manufacturing ended the year 2013 on a high note. The broad measure of U.S. industrial output grew in December at its fastest pace in 11 months. The rate of job growth continued to be negative despite the growth in GDP as the long term unemployed exited the job market (and also exit this statistic- which skews things- making the “measured” unemployment rate lower than it actually could be reported).

Of the 18 manufacturing industries surveyed, 13 reported growth in December in the following order: Furniture & Related Products; Plastics & Rubber Products; Textile Mills; Apparel, Leather & Allied Products; Computer & Electronic Products; Paper Products; Transportation Equipment; Primary Metals; Fabricated Metal Products; Wood Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; and Miscellaneous Manufacturing. The four industries reporting contraction in December are: Nonmetallic Mineral Products; Machinery; Chemical Products; and Electrical Equipment, Appliances & Components.

During my two years at Blackbird Asset Services in Buffalo, NY, we have liquidated or appraised the assets from many of the industries in this report. This leads me to wonder how GDP growth impacts our industry- that of the industrial auctioneer or appraiser. The impact can be measured in terms of asset values and also by the quantity of equipment available (thus the number of potential auction opportunities).

Like most industries the auction industry is based largely on supply and demand. With the expansion and growth of manufacturing, the demand for machinery and equipment will increase. An increase in demand for specialized equipment within the growing industries will lead to an increase in value for the equipment. This is positive for both the auction company and the seller of the equipment. There is a common misconception that the auction industry does “better” when the economy is not doing well. The reality is that because most auction companies work on some type of commission, during times of recession (when prices are weak) the revenue for auction companies often suffers. An increase in volume of lower priced goods leads to working twice as hard for half as much money.

The old expression that a rising tide lifts all ships applies to both the value of industrial equipment and the revenue streams of the industrial auctioneer.