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July 7, 1999

5 Min Read
Molders Economic Index: Manufacturing shows signs of recovery as Asia rebounds

Signs of growth in U.S. manufacturing are now as plentiful as weeds in a spring garden. The factories in the U.S. are clearly emerging from what many now call a mini-recession, and thus for injection molders across the country the outlook has brightened. Just how bad was it? We don't have enough data to define just what happened. But we believe that overall injection molding plant output over the past seven months slid by about 1.2 percent, a significant decline in a market where solid gains had become the norm. Injection molders are doing far better than those in the metal industry: Raw steel output in the U.S. has fallen 11.7 percent in the first quarter of 1999.

In short, across almost all industries we're starting to see a clear trend towards an accelerated rate of product shipment, increased order levels, and low inventories. And signs of new growth in exports have started to develop. Injection molders are likely to benefit. TheIMM Index reflects slightly improved year-end 1999 forecasts, which may be revised as additional data indicating strength in exports become available.

Gross domestic product, the broadest measure of goods and services output, climbed at a blistering 4.5 percent annual rate in the first quarter of 1999, down moderately from a sizzling 6 percent in the fourth quarter last year.

Consumers boosted spending at a 6.7 percent annual rate in the first quarter-the strongest advance in personal consumption spending in 11 years, since a 7.2 percent jump in the first quarter of 1988, and up from a 5 percent fourth quarter increase. However, if you exclude the weak export market from these data, GDP would have grown at an explosive rate of nearly 7 percent. Consumer spending, along with very strong housing markets, continues to drive the economy. There are signs that the rapid decline in exports-painful to many molders-may have slowed.

Yet imports remain at an all time high with the trade deficit near the $20 billion/month mark for the first quarter of 1999. Imports from China in March were up almost 10 percent and imports from Japan jumped almost 7 percent. How bad are overall exports? West Coast exports to East Asia declined almost 12 percent in 1998 compared to 1997 while imports from East Asia to the West Coast jumped close to 27 percent.

Durable Goods
So what's the evidence? At the end of the first quarter of 1999 total unfilled orders for durable goods, new orders to factory, and actual product shipments were at the highest levels in six months; inventories were at their lowest. Durable goods are one of the best indicators of what injection molding plants across the country are doing and how well they are likely to do in months to come. Market segments that impact injection molding showed similar performance: What the Commerce Department calls "home goods" had the highest level of unfilled orders since October 1998; "household durables"-i.e. appliances or vacuum cleaners-were also at the highest level in six month.

Injection molders serving automotive told us that their business is finally starting to pick up. Even though car and light truck sales have remained very strong, a higher level of imported automotive parts has resulted in little benefit to the domestic molding industry. Now this is changing. Transportation orders that account for more than one-fifth of monthly durable orders gained 3.6 percent to $47.34 billion in March after plunging 12.8 percent in February.

The leader in injection molding growth-electronics and electrical-is also returning to rapid expansion. March 1999 data show that orders for electronic and electrical equipment increased 3.1 percent to $33.59 billion after decreasing by 6.7 percent in February. Industrial machinery orders-a category that includes computers-advanced 2.9 percent to $38.04 billion in March, rebounding from a 0.6 percent fall in February.

The reports on durables appear to confirm signs of improvement in recent data from the National Assn. of Purchasing Management, which reported industrial sector growth in February and March after eight months of contraction. What makes many bullish is that the tight labor market and the resurgence in manufacturing has not led to any signs of inflation. This means that the Federal Reserve is likely to hold the line, at least for now, on interest rates.

Computers: Rapid Growth
Computers and electronics continue to surprise molders and others with rapid growth. Yet molders are troubled that imports of parts for computers, office machinery, electronic toys and the like continue to grow faster than U.S. output of such goods. As one molder of office printer housing parts said: "For every percentage point of growth we see, imports rise two points."

While imports hurt molders here, the overall electrical and electronic business is growing so fast that there is plenty of new molding work for importers as well as the domestics. Worldwide shipments of personal computers rose 17.2 percent during the first quarter of 1999 compared with a year earlier to 25 million units, reported research group Dataquest.

Compaq saw shipments of 3.35 million units, a 9.9 percent year-on-year rise. Shipments by Dell jumped the most, increasing 49.1 percent year-on-year to 2.3 million units during the first quarter. "The global PC market was not only fortified by a steady U.S. market, but also by continued health in the Western European market," David Stremba, principal analyst for personal computers at Dataquest, said. "Within the Asian region, the Japanese market continues to exhibit strength in the consumer segment despite its prolonged economic weakness," he added.

Similar data for the first quarter of 1999 came from International Data: global computer shipments grew 19 percent year-on-year due to consumer demand and rebounding markets in Asia and the Pacific. Worldwide growth was led by the U.S. market, which expanded 24 percent to 9.8 million units in the first quarter. PC sales bring higher sales of printers, scanners and the like, lifting the overall outlook for molders serving this market.

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

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