Molders Economic Index: Molding strength expected to persist

Evidence accumulatesthat we may encounter either a sharp slowdown or a mini recessionin the first or second quarter of 2001. Yet most molders can viewthe next six months-and in the case of appliances and medicaldevices, the next nine months-with confidence.

A molder of door handles and similar devices for laundry equipmentand freezers wrote in e-mail, "My orders are up 15 percentfor the year and I anticipate scheduling overtime at least throughMarch." This and other similar comments from molders conflictdirectly with overall slowdowns in appliances sales, reduced automotivesales forecasts, and even a slump in electronics.

Just what is going on? U.S. appliances sales, for instance,have been weak and are likely to stay weak for several months.But actual exports for such products are up for the year by 18percent, and new export orders show solid increases. As a resultU.S. molders in this and other markets will see some slowdownin domestic sales but will make up the difference through a veryhealthy export market.

Sadly, not all molders benefit from strengthening exports.But overall-even taking into account reduced economic growth athome-stronger exports will result in a steady upswing for theMolders Economic Index. This month we present midyear 2001 growthtargets. Note that these figures are subject to sharp revisionsin the months to come as the overall economic picture clarifies.

The strength in exports comes somewhat as a surprise consideringthat the very strong dollar has made U.S. goods more expensiveabroad. Product areas where exports are up-medical devices, componentsfor business machines, high-quality appliances, communicationsequipment, and electronic components-have typically not been veryprice sensitive. At the same time, these products use a very highnumber of injection molded parts.

Orders Are Back Up

Factory orders rose by a surprising 2 percent in August afterposting a record drop the month before. A big jump in demand forairplanes and other transportation equipment led the way. Thiswas the third increase in the last four months. In July, factoryorders fell by a record 8.1 percent, according to revised figures.

Of particular benefit to molders, orders for electronic andelectrical equipment, including household appliances and communicationsequipment, rose 2.7 percent in August, mostly due to higher demandfor electronic components. The month before, such orders fellby a sharp 18.9 percent.

In August, orders for medical instruments and supplies wereup 5.3 percent; orders for measuring and controlling devices jumped7 percent; basic electronic components saw orders grow 9.2 percent.

Drop in Key Index

While these orders spell solid manufacturing growth for atleast six months, the index of leading economic indicators fellin August, the third decline in the last four months, suggestinga slowdown.

While the U.S. economy grew at a 5.6 percent annualized pacein the second quarter, signs point to a slow second half of 2000.Consumer spending, which accounts for about two-thirds of economicgrowth, grew at the slowest pace in three years in August.

In September, manufacturing activity in the U.S. contractedfor the second straight month. The National Assn. of PurchasingManagement said its production index rose to 49.9 percent in September,slightly better than the 49.5 percent recorded in August. Theassociation uses 50 percent as a break-even point; anything abovesignals economic growth and anything below indicates contraction.

Uncertainty in Electronics

The very dramatic growth in electronics-components for computers,printers, scanners, mobile phones, and any other devices containingsemiconductors-will halt for the next few months.

As the Index shows, these products-a lucrative business forcomponents molders-have dramatically outperformed the rest ofthe molding market since 1994. The anticipated slowdown (we revisedthe year-end target down) is temporary and is due to some severeshortages in chips.

Keep in mind that for molders, even a temporary slowdown meansthe market will remain red hot. Worldwide sales of semiconductorsgrew 53 percent to hit record levels during the month of August,driven by strong Asia-Pacific region growth and booming demandfor devices used to facilitate Internet and other communications.

For instance, in early September Sony Corp. announced thata lack of components will force the company to halve initial shipmentsof its new PlayStation 2 video game consoles, likely to be oneof this year's most sought-after gifts.

Automotive Remains Strong

Molders have been e-mailing us with reports that demand forautomotive parts has been growing sharply in the past few weeks.

Even though many anticipate slower car and light truck salesfor the balance of 2000 as a result of higher interest rates,recent data show the opposite. New vehicle sales in the U.S. rose5 percent in September compared with a year ago. The auto industry'ssales pace for September, measured as the number of vehicles itwould sell over a year at the same rate, was 17.7 million lightvehicles. That's still ahead of last year's record total of 16.9million vehicles, but slower than the rate earlier this year.

U.S. automotive parts molders may see slower domestic ordersif predictions of reduced sales are correct. But many will becushioned by the decrease in automotive parts imports, which havebeen declining since November 1999, as this boosts demand forU.S.-made parts.

The Molders Economic Index is prepared exclusivelyfor IMM by Agostino von Hassell of The Repton Group, New York,NY.