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Molders Economic Index: All signs point toward more future growth

August 15, 1999

5 Min Read
Molders Economic Index: All signs point toward more future growth

By the time you read this, yet another batch of strong economic data may have been released. All signs for the past few months suggest that the return of growth to the U.S. manufacturing sector is continuing and that strong and sustained growth can be anticipated for the next 12 months. Data released by the federal government in late June and early July confirm that the doldrums in manufacturing seem to be over and that every manufacturing sector has returned to growth. This is good news for injection molders, many of whom saw their business contract in late 1998 and early 1999.

What fuels this growth? The overall economic boom in the U.S. has regenerated demand for domestically manufactured goods. For much of 1998 and early 1999 a surge of imports grabbed most of the increases in consumer spending. But by now, domestic molders-particularly those serving the red-hot consumer spending market-are finding that their orders are increasing again. And, to the relief of many, exports of injection molded goods are on the rise again. Most of the export increases are in molded medical parts and high-value consumer electronics components.

Bases of the current economy are stable interest rates (the economy seems to have shrugged off the impact of the June quarter-point interest rate hike), record employment and job creation, high consumer spending, and, most significant for growth in manufacturing, a startling recovery of Asia's battered economies.

Rapid Recovery for Asia
It is the recovery in Asia that has the most immediate impact on U.S. molders. As growth returns to the economies of the Pacific Rim, local demand there grows, lessening the pressure to export at rock bottom prices. And as trade data by the end of this year will likely show, countries such as Thailand, South Korea, the Philippines, Malaysia, China, and Japan have started to import manufactured goods from the U.S. Japan's economy, in particular, is critical as an engine that will propel all of Asia forward, increasing regional demand and thus stimulating U.S. exports. The signs are few, but many believe that Japan's battered economy is returning to some form of growth and may very well recover by mid-2000.

Japan's index of leading economic indicators topped 50 percent for the third consecutive month in May, reported Japan's Economic Planning Agency. The leading diffusion index, which forecasts economic performance six months ahead, rose to 64.3 percent, after posting 63.6 percent in March and 55.6 percent in April. Japan's consumers have also started to spend; for instance, sales of imported automobiles climbed 15.8 percent in June compared to the same month a year before. While the economic decline in Asia was very steep and also very rapid, forecasters around the globe are startled by the almost as rapid recovery and are adjusting their growth projections upwards almost every month.

Key Indicator: Factory Orders
One closely watched indicator of what will happen to U.S. manufacturing is the monthly report on the value of new orders to U.S. factories. In early July, the Commerce Department reported that the value of new factory orders rose a stronger-than-expected 1.1 percent in May to a seasonally adjusted $348.64 billion, partly reversing a 1.4 percent drop in April.

The May pickup was the ninth increase in factory orders during the past 12 months. In early July, the National Assn. of Purchasing Management reported that its gauge of manufacturing activity posted a fifth straight monthly increase in June to hit its strongest pace since July 1997. This means the sector has regained all the momentum it had before the Asian financial crisis began in the summer of 1997. In May, orders for products containing numerous injection molded parts showed continued increases. For instance, orders for long-lasting durable products like new cars and refrigerators were up 1.2 percent to $197.04 billion.

Also in May, some market segments showed a temporary weakness but are generally expected to resume very strong growth later this year. The Commerce Department reported that orders for industrial machinery were down 3.9 percent in May after a 3.2 percent rise in April, and electronic and electrical equipment orders declined 1.2 percent following a .3 percent rise in April.

Note here that sales of PCs and related equipment remain very high and are anticipated to rise by more than 14 percent in the U.S. for all of 1999. However, the trend towards low-cost PCs-priced below $1000 or even $500-has reduced demand from U.S. parts producers as PC assemblers hunt for lower-cost supplies from low-labor-cost countries like China. Yet our contacts with molders show that the blistering rate of growth for U.S.-made injection molded electronics parts will, at worst, only moderate to about 10 percent for all of 1999, down from 13 percent growth in 1998.

Automotive Parts
Growth is returning to U.S. molding plants supplying car and truck factories. While the level of imported parts remains high, output for domestic automotive parts producers has now increased for three months, fueled by record sales. In June 1999, the U.S. automotive industry sold cars and light trucks at a pace that would translate to 17.16 million light-vehicle sales for the entire year. Last year's June rate was 17.04 million. Sales for the year are up 7 percent compared to 1998.

Although the automotive industry projected an overall sales rate of 15.6 million units in 1999, very strong sales are forcing revised forecasts. GM is already publicly saying that the industry's record sales in 1986-when light-vehicle sales topped 16.05 million-could be topped. Last year, the industry sold 15.59 million light vehicles, second-best ever. Domestic molders are benefiting from increasing sales and are likely to see solid gains for the balance of 1999. Note that strong imports of parts have kept domestic parts producers from recording similar increases so far this year.

About the Index
This exclusive Molders Economic Index is a monthly service from IMM that tells you at a glance how your markets are doing and what the general outlook is. We cut through the flood of government and industry statistics and isolate those data that directly relate to your injection molding business.

The index is a record of production statistics that is indexed to the base period of July 1994 as 100 and is designed to give you a quick guide to industry conditions that directly affect your injection molding business. The index also shows year-end projections. Each major market is given a specific weight reflective of its share of the total market of injection molding uses.

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

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