Pricing – New Orders are based on the pricing of units ordered, while Production is based on the number of units actually made. Because higher costs are passed onto the consumer, we see a rise in new order dollar amounts. Production does not directly benefit from the higher prices.
Supply Chain Woes – New Orders can be placed, but sluggish activity in the supply chain can hinder the production process. While we expect supply chain constraints to lessen as we progress through the year, this remains an ongoing risk to the production process.
Multiple Orders – With customers concerned about long delivery times and inventory in general, some are placing multiple orders and then canceling any not-yet-delivered products. This can result in inflated order numbers relative to the desired number of units.
There are steps you can take to position yourself better for 2022. First, know how you align with the trends. Is your business more in alignment with New Orders or Production? How does your business relate to the macro and regional housing environment?
Secondly, ensure your suppliers are well-positioned for 2022. While customers are now accustomed to longer-than-normal delivery times, being speedy will help win business.
Thirdly, ensure you have strong cancellation clauses in place. You do not want to build out capacity for orders that may be canceled on you.
Lastly, while we see the housing market and U.S. Refrigeration and HVAC Equipment on the backside of the business cycle in 2022, it is essential to remember that the overall outlook is strong. Even the decline in U.S. Refrigeration and HVAC Equipment Production in the latter half of 2022 into 2023 will be relatively mild and will not erode all of the gains made in 2021.
Lead with confidence. Your teams may become nervous as they see the news. Share the leading indicators and our forecasts with them so they too can feel confident.
Jackie Greene is Vice President of Economics and has served ITR Economics’ (https://hubs.la/Q011t5WX0) clients since 2005. She has contributed to the company’s forecasts, publications, and thought leadership. Jackie works with many clients in a one-on-one capacity and delivered keynote addresses on multiple continents.
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