USA Sector report

February 2021

Sectors @ a glance

Industry performance outlook

Agriculture

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Automotive/ Transport

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Chemicals/Pharma

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Construction/ Const. Materials

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Consumer Durables

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Electronics/ICT

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Financial Services

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Food

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Machines/ Engineering

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Metals

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Paper

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Services

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Steel

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Textiles

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Agriculture

The arrows in this overview represent the direction of change in the Atradius outlook for the industry since the previous update. No arrow will appear if there has been no change in our overall outlook.

Remains Fair Overall, farm cash receipts for all commodities are expected to decrease by 0.9% in 2020, mainly due to a 5.5% decline in the animal and animal products segment. Overall crop receipts are expected to increase by more than 3% in 2020, as a result of rises in fruit/nuts and soybeans, offsetting lower demand for corn, wheat, and cotton. The declining demand in core commodities such as corn, wheat, and livestock is attributable to lower global demand. The industry continues to be supported by government programs, including the Coronavirus Food Assistance Program and the SBA Paycheck Protection Program.

Automotive/Transport

Remains Poor Following the initial spread of coronavirus, automotive demand fell significantly in light of stay-at-home orders and the spike in unemployment. This led to liquidity concerns throughout the automotive supply chain. While the major OEMs halted production for several weeks in April and May, production started to rebound in H2 of 2020, with volumes rising as capacity returns and operators restocked after running down inventory levels during the shutdowns. However, production volumes remain well below pre-coronavirus levels, and businesses´ cash flows remain under pressure, which has led to rising payment delays. Automotive value added is expected to rebound 17% in 2021 after a 19% contraction in 2021. However, uncertainty related to future demand and the ongoing second wave of coronavirus cases remain downside risks. Value added in the transport sector is expected to contract by 19% in 2020. Up to 40 airlines have already failed or gone into bankruptcy restructuring. Businesses in both the airlines and the cruise lines segment continue to burn cash at a significant pace, given the sharp decrease in demand. Payment delays and defaults are expected to increase further in H1 of 2020. A recovery strongly depends on the vaccine rollout this year.

Chemicals/ Pharmaceuticals

Remains Fair Due to the significant decrease in oil prices over the course of 2020, the energy and fuel subsector continues to suffer from a severe decline in investments and revenues. There has been strong pressure on profit margins of businesses, and insolvencies have substantially increased in this segment, particularly within exploration and production. Low oil and gas prices continue to present significant challenges to businesses in H1 of 2021.

Other chemicals subsectors like rubber and plastics have fared better so far, benefitting from cheap and abundant energy and feedstock supplies. While production decreased in H1 of 2020, it has rebounded modestly since Q3 of 2020. Profit margins of businesses are generally stable, and the number of payment delays and insolvencies is expected to remain low in H1 of 2021. Chemicals value added is expected to increase by about 2.5% in 2021.

Branded pharmaceuticals businesses are characterised by robust margins and the strong cash flow of businesses. Pharmaceuticals will benefit from rising health care expenses in 2021. With strong bank and government support, manufacturers are quickly building up capacity in order to be prepared for mass production and distribution of coronavirus vaccine.

Construction/Construction Materials

Remains Fair The coronavirus pandemic resulted in a significant reduction of construction starts in 2020, with many segments experiencing double-digit losses. After a 14% decrease in 2020, a modest 4% recovery is currently expected in 2021, with the effectiveness of recently approved vaccines and federal stimulus measures influencing the outcome. In the residential building segment, single-family construction has been resilient so far, while multi-family starts expected to continue to decline after a poor 2020 performance. Commercial and industrial construction have shown weakness in 2020 with businesses losing revenues, but a rebound is expected in 2021. Persistently low interest rates, a glut of first time homebuyers and a large migration from cities to suburbs have kept construction business confidence up so far. However, some material shortages, volatile input pricing and protocols to maintain employee health in light of the pandemic are factors still weighing on the industry.

Consumer Durables

Remains Poor Non-food retail has suffered from store closures, subdued private consumption and increased unemployment due to the spread of coronavirus in the US. While online retailers expanded their sales during Black Friday and Cyber Monday, brick-and-mortar stores recorded a 24% sales decrease over the same weekend. The household appliances segment has performed quite well under the given circumstances. However, as the long-term unemployment situation is worsening, this could cause consumers to delay any upgrading of their household appliances. The furniture segment has experienced a rebound in 2020 due to a combination of pent up demand, home remodelling and remote work/school. Large payment delays from early in the pandemic have been recovered, but major uncertainties over the performance in the coming months remain. Companies with a strong online presence and/or the ability to shift to remote sales have been capable of maintaining a solid operating profile. However, due to fierce market competition and substantial downside risks, many businesses continue to suffer, in particular brick-and-mortar retailers. In this segment, payment delays and insolvencies have already increased sharply in 2020, and permanent business closures amounted to more than 6,000. Given the ongoing downside risks (e.g. second wave of the pandemic), retail insolvencies are expected to increase further in H1 of 2021.

Electronics/ICT

Remains Fair ICT value added growth is forecast to increase by almost 7% in 2021 after growing 2.5% in 2020. The performance of businesses operating in this sector has differed widely, depending on the diversification of their supply chains, as well as on the impact of coronavirus-related lockdowns. ICT businesses focusing on enterprise cloud, mobility and remote connectivity have generally performed well. Consumer electronics retailers with a strong online presence have also recorded steady demand, as consumers established home offices for remote work/learning. Most ICT businesses have sought to conserve liquidity in light of the coronavirus-related uncertainty with a combination of cost cutting measures and drawing down on lines of credit.

Financial Services

Remains Fair The finance sector includes banks, insurance companies, private investment funds, brokerages and mortgage finance companies. Financial service institutions are generally much more resilient now than during the 2008/2009 credit crisis. Banks are well capitalised and should continue to maintain adequate capital ratios in 2021. The Federal Reserve´s Main Street Lending and Paycheck Protection Programs have provided banks with additional fee and interest income, supporting strong capitalization. It has extended emergency lending facilities until March to support short-term liquidity in the financial market. Homeowners insurance and car insurance providers should not experience any substantial impacts in the short-term, as premiums have remained stable. However, independent mortgage companies, which typically have limited liquidity and capital buffers, could face challenges in the near term, as 30-day mortgage delinquencies are expected to be slightly higher than in 2009 and will peak in 2021.

Food

Remains Fair Value added of the food sector is expected to increase by about 2.5% in 2021 after a small 0.3% contraction in 2020. Competition in the sector is persistently fierce, especially in the distribution and retail segments. Payments commonly range between 30 and 90 days. Given the slow growth and intense competitiveness in both retail and foodservice channels, heavy and costly promotion activities will continue. These will include value options, bundling and temporary price reductions. While retail grocery stores have shown significant increases in revenue, margins are not quite up to the same increases, due to additional costs brought about by the pandemic (e.g. personal protective equipment). The overall outlook is cautionary, as restaurants and food distributors selling to hotels, restaurants and schools are showing signs of distress. A significant number of restaurants and food service companies have closed or gone insolvent, given the prolonged pandemic-related restrictions. It is expected that about two-thirds of restaurants will not survive in the mid-term. Payment delays and insolvencies will increase further among food-service businesses.

Machines/Engineering

Remains Fair In 2020 coronavirus-related shutdowns negatively impacted the sector. Additional safety protocols have caused increased costs for many businesses, while reduced capital spending and project delays have reduced demand. Engineering value added is expected to have declined by 11% in 2020. While payment delays increased in H2 of 2020, a modest rebound is ongoing. Downside risks remain that could lead to another decline in demand, production and revenues, amid maturing debt obligations and significant burn of cash.

Metals

Remains Poor In 2020 metal businesses reliant on automotive, aerospace and the oil country tubular goods (OCTG) industries have recorded considerable revenue declines and increased pressure on profits, as large capital expenditure projects were delayed or even cancelled. At the height of the pandemic in early 2020, metals pricing decreased 11% on average across all non-ferrous metals, putting additional stress on their already weak performance. Both payment delays and insolvencies increased in H2 of 2020. While metal prices have started to increase again since Q2 of 2020, and production resumption has improved with demand in the automotive sector, major uncertainty remains. Any substantial rebound of the metals market in 2021 will have a lag time dependent on a comprehensive recovery of automotive, aerospace and OCTG.

Paper

Remains Poor Paper producers and printing were structurally impacted by the ongoing digitalization process even before the coronavirus outbreak. The mandated restrictions imposed on offices, schools and universities have only accelerated the shift from paper to digital formats. At the same time, companies have limited their discretionary spending and have cut back on advertising/marketing costs, leading to a decline in commercial printing demand. Paper value added is expected to rebound by just 0.5% in 2021 after a 2.5% contraction in 2020.

Services

Remains Fair The services sector is an extremely diverse sector comprised of numerous segments. Demand for healthcare, education and government services is expected to remain stable or even to increase. However, some subsectors like hotel and catering, restaurants, bars, entertainment and cultural events, travel agencies and tour operators have been heavily affected by sharply decreased footfall and closures resulting from the coronavirus pandemic. The increasing number of the coronavirus cases in parts of the US will likely slow the recovery in travel and lodging demand in H1 of 2021. Payment delays and business failures have increased in the most impacted segments, with predictions that 10%-15% of hotels could become insolvent. Hotel and catering added value is forecast to rebound by just 0.5% in 2021, after a 16% contraction in 2020.

Steel

Remains Poor The steel industry has been severely impacted by the sharp decline in demand from the automotive and oil and gas sectors. While demand has somewhat improved with the production resumption in the automotive sector, major uncertainty remains, and volume and capacity levels remain depressed. The Oil Country Tubular Goods (OCTG) subsector is under significant pressure due to lack of spending within the energy exploration and production industry. Payment delays have increased sharply in 2020, while in 2021, steel value added is expected to rebound only 9% after an 18% contraction in 2020.

Textiles

Remains Poor Producers, wholesalers and retailers already suffered before the coronavirus outbreak from fierce competition and thin margins. Brick-and-mortar clothing retail has been gradually declining for years, as the industry struggles to adapt to shifting consumer preferences for clothing (less formal, more casual) and how they buy (less in-store, more digital). Deteriorating sales due to coronavirus-related lockdowns have exacerbated the market crisis, and clothing retailers’ insolvencies have sharply increased in 2020, with further increases expected in the coming months. Suppliers have to tackle unforeseen inventory and liquidity issues. With consumers shifting some of their spending online permanently, they are unlikely to return to mall-based specialty apparel and department stores. Textile value added is forecast to contract 3% in 2021 after an 8.5% decrease in 2020.

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