We are now in the traditional summer
slowdown, a trading period affected by shutdowns and vacations usually
resulting in lower growth for the manufacturing industries. This year our company, Multicyl Inc. is being
carried through this period on the crest of a wave, with production backlogs at
an all-time high. Although the phone is quieter than earlier in the year we are
experiencing a period of activity which reflects the confidence of the
manufacturing industries we serve.
Belonging to the Machine Tool
Industry as we do, our trade figures have long been used as a barometer for the
future health of manufacturing. Below we have positive feedback from AMTDA, AMT
and USMTO with the background story as to why we are feeling this mini-boom.
U.S. Manufacturing Technology Orders
More Than Double Year-Over-Year
U.S. manufacturing technology orders
have dropped the past couple months from a nearly $502 million high in March,
but they continue to well outpace 2010 orders. May orders totaled more than
$388 million, down 2.6% from April, but up more than 121% from May 2010,
according to the American
Machine Tool Distributors’ Assn.
(AMTDA) and the Assn.
for Manufacturing Technology
(AMT). Year-to-date orders have reached almost $2 billion, up 108% over 2010.
The numbers are based on data
reported by companies participating in the U.S. Manufacturing Technology Orders
(USMTO, formerly USMTC) program. “The May order numbers confirm our members’
reports of continued strong project levels by manufacturing companies to
improve productivity in their factories,” said Peter Borden, AMTDA president.
“The 2,000 unit-per-month level signifies a very healthy demand still in place
as we head toward the close of the second quarter.”
Three of the five regions that the
two associations track actually showed a month-over-month rise in manufacturing
technology orders in May. The Northeast, Southern and Midwest regions all
performed well, with orders rising 8.4%, 5.1% and 10.9%, respectively. The
Midwest has been coming on particularly strong, with May orders up almost 233%
over the previous year, and 2011 year-to-date totals at 168.5% more than the
comparable figure for 2010.
The Central region’s technology
orders dropped almost 22% in May to just over $95 million, but are up almost
84% year-over-year. The Western region saw orders fall 12% in May, but
performance gained 94% over the previous May.
Earlier reports concluded that overall construction spending was barely
above an 11-year low hit in February. And it is roughly half the $1.5 trillion
pace considered healthy by most economists. Analysts say it could be another
four years before construction returns to healthier levels.
The economy grew only 1.9 percent in the January-March period, the
government said last week. Most economists predict growth to be similarly weak
in the current April-June period.
But gas prices are falling. The average price per gallon was $3.55 on
Friday. That's down from nearly $4 per gallon in early May.
Cheaper gas should allow consumers to eat out more often and spend more on
discretionary purchases, such as furniture and appliances. Consumer spending
makes up 70 percent of economic activity.
And the impact of a parts shortage stemming from the March 11th Japan
earthquake appears to be easing. All three U.S. automakers on Friday reported
stronger sales in June after a slump in May.
The ISM report gives investors some hope that growth will be stronger in the
second half of the year, said IHS Global Insight economist Nigel Gault.
There were slightly more new orders for goods in June, and employment picked
up. Manufacturers are adding to their stockpiles again.
Economists are also counting on a recovery in auto production to boost
second half growth. Deutsche Bank economists estimate that improved auto
manufacturing could add as much as a full percentage point to third and fourth
quarter growth.
Some signs from abroad are troubling, too. Chinese manufacturing slipped to
its slowest pace in 28 months in June, dragged down by rising interest rates
and declining exports, according to surveys released Friday in China.
That suggests problems in the U.S. The factory sector has been the primary
driver of the recovery, growing now for 23 straight months. And strong growth
overseas has been a key part of that growth for large manufacturers of
industrial equipment and machinery, such as Caterpillar Inc.
The ISM, a trade group of purchasing executives based in Tempe, Ariz.,
compiles its manufacturing index by surveying about 300 purchasing executives
across the country.
A host of factors have conspired to weaken the
outlook for the overall U.S. economy, yet the manufacturing sector continues to
forge ahead.
The latest quarterly Manufacturers Alliance/MAPI
U.S. Industrial Outlook suggests that the manufacturing sector is poised for
more growth.
"The positive momentum of a 2 percent reduction
in payroll taxes this year and 100 percent expensing of equipment and software
investments has been more than offset by higher oil prices, and Japanese
automakers in the U.S. faced a parts shortage as a result of the tsunami,"
said Daniel J. Meckstroth, Ph.D., chief economist for the Manufacturers
Alliance/MAPI and author of the analysis. "Manufacturing, though, is
currently well positioned for growth. There is pent-up demand for consumer
durables, firms are profitable and need to spend more for both traditional and
high-tech business equipment, and strong growth in emerging economies is
driving U.S. exports."
Manufacturing industrial production, measured on a
quarter-to-quarter basis, grew at a 7 percent annual rate in the first quarter
of 2011, after expanding at a 3.4 percent annual rate in the fourth quarter of
2010. MAPI forecasts that manufacturing production will increase 6 percent in
2011 and advance by 4 percent in 2012.
Production in non-high-tech manufacturing expanded
at a 5.7 percent annual rate during the first quarter of 2011. According to the
MAPI report, non-high-tech manufacturing production (which accounts for 90
percent of the total) is expected to increase 5 percent in 2011 and 4 percent
in 2012. High-tech industrial production rose at a 21 percent annual rate in
the first quarter of 2011. MAPI anticipates this sector will post strong 15
percent growth in 2011 and 13 percent growth in 2012.
As shown in the new report, 18 of the 27 industries
MAPI monitors had inflation-adjusted new orders or production above the level
of one year ago, two more than reported in the previous quarter, and four
industries remained flat. Industrial machinery grew by 32 percent in the three
months ending April 2011 compared to the same period one year earlier, while
mining and oil and gas field machinery production improved by 29 percent in the
same time frame.
The largest drop came in housing starts, which
declined 15 percent. Private nonresidential construction experienced an 11
percent decline.
Meckstroth reports that five industries are in the
accelerating growth (recovery) phase of the business cycle; 17 industries are
in the decelerating growth (expansion) phase; two industries appear to be in
the accelerating decline (either early recession or mid-recession) phase; and
three are in the decelerating decline (late recession or very mild recession)
phase of the cycle.
The report also offers economic forecasts for 24 of
the 27 industries. MAPI forecasts that 21 of the 24 industries will show gains
in 2011, led by mining and oil and gas field machinery, and industrial
machinery, each with expected 26 percent growth. One industry, electric
lighting equipment, will remain flat. The recovery should continue in 2012 with
growth likely in 23 of 24 industries, including five industries that are
predicted to grow at double-digit rates, led by housing starts at 61 percent,
albeit from depressed levels, and communications equipment at 16 percent.
Public works construction is the only industry anticipated to decline, by 2
percent, in 2012.
