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January 1, 2002

5 Min Read
Molders Economic Index: More molders will see growth by the summer

Evidence is accumulating fast that the manufacturing economy will pull out of a deep recession by the summer, provided no additional terrorist attacks take place to derail consumer confidence. 

Here are the key indicators:
• Car and light truck sales boomed again in November after a very strong October. Carmakers have already indicated cautious plans to boost production in early 2002. 

• Holiday spending data show that consumers are returning to stores. While complete data will not be available until well after this issue is printed, early signs show that the critical holiday spending in 2001 could beat 2000 levels. 

• Inventories of major retailers are depleted. Orders for all types of consumer goods are anticipated. 

• Sales of computers and electronic products have shown signs of life, leading to projections of moderate to strong growth in 2002. 

• Housing is holding up well. This will boost orders for construction components, appliance parts, and furniture parts. 

We predict that the pickup in overall molding business will take several months to filter through the economy and that by late spring most molders will see a nice increase in orders. 

This rosy forecast applies to all of North America—the United States, Mexico, and Canada. As explained at the end of this article, IMM now covers this entire region with the index to provide a more meaningful gauge of molding activity. 

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Economic Developments 
Here are some of the developments that back up our assertions. 

An important gauge of future economic activity rose .3 percent in October. The New York-based Conference Board said in December that its Index of Leading Economic Indicators edged up to 109.4 in October, following a .5 percent decline in September and a .1 percent drop in August. The index indicates where the overall economy is headed in the next three to six months. It started at 100 in 1996, its base year. 

Sales of new cars and trucks maintained a robust pace in November after a record-setting October, as interest-free loans and other discounts continued to attract buyers. It now looks like 2001 may be the second or third best year ever for car and light truck sales. 

Some carmakers remain cautious about the new year, setting low production targets for the first quarter. For instance, Ford has set its first-quarter production forecast for 2002 at 980,000 vehicles, about 9 percent lower than Q1 2001. By contrast, GM said it's setting its first-quarter production forecast at 1.3 million vehicles, up 7 percent from a year ago. GM also said it's boosting Q4 2001 production by 15,000 vehicles. 

For all of 2001 import of automotive parts increased, further cutting into the average local content. This hurts U.S. molders. While Canadian parts are considered local, the rapidly growing car parts imports from Mexico are still counted as foreign. Considering how many U.S. molders have operations in Mexico, some of the data on U.S. automotive parts molding are somewhat misleading. 

Overall manufacturing is poised for recovery, regardless of bad news in late November and early December. For instance, U.S. manufacturing in November contracted for the 16th straight month, though the rate of decline slowed. The Tempe, AZ-based National Assn. of Purchasing Management said that its index of business activity rose to 44.5 in November from 39.8 in October. 

Industrial production plunged in October for the 13th month in a row, the longest string of declines in manufacturing activity since the Great Depression. The Federal Reserve reported that output at the nation's factories, utilities, and mines plummeted 1.1 percent, on top of a similar 1 percent decline in September. Operating capacity sank to 74.8 percent in October, the lowest level since June 1983. 

What is likely to boost manufacturing in 2002 is a resumption in strong consumer spending, forcing retailers to increase orders. In December the Commerce Dept. reported that personal spending rose by a record 2.9 percent in October, led by a surge in the purchase of autos and other durable goods. 

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Electronics: Hints of Growth 
Several molders making components for computers and related equipment have e-mailed us. They all state that quoting activity is up and that customers have indicated that orders will be higher come March or even sooner. 

Several leading indicators confirm this. Global sales of semiconductors rose just 2.5 percent in October and remain well below 2000 levels, but after a tough year, chip inventories are now largely in balance, and prices are rebounding, the Semiconductor Industry Assn. (SIA) reported. 

SIA also said global semiconductor sales will increase 6 percent in 2002 to $150 billion, and 21 percent in each of the following two years, reaching $218 billion by 2004. Another report said that the telecommunications equipment industry should begin turning around in Q1 2002, spurred by consumer demand. 

The Shosteck Group, a Washington, DC-based telecommunications consulting firm, projects that telecommunications equipment sales will recover by 4.5 percentage points to increase 11.2 percent in 2002 over 2001 levels. It expects industry sales to grow an additional 10 percent in 2003 compared with 2002. 

The major fly in the ointment is mobile phones, an attractive market for molders of low-tolerance parts. The decline in global mobile phone sales accelerated in the third quarter, with industry leader Nokia again losing market share, according to research firm Gartner Dataquest. 

The New Index â€” For a PDF version of the Economic Index table click here.
This month we start the new North American Molder's Economic Index. We report two indices. 

One is the traditional report tracking growth in output of molded parts for the U.S. The second index tracks the combined output for molded parts for Mexico, Canada, and the U.S. 

This adjustment is forced by the fact that Mexico has taken away from the U.S. numerous molding jobs, but exports the components into the U.S. And Canada, even though it's struggling with the same recession as the U.S., is becoming a dominant supplier of injection molded automotive parts, components for sporting goods, furniture, and housing parts. 

The North American economy will be the subject of a special report in the next issue of IMM

Agostino von Hassell of The Repton Group, New York, NY, prepares this index. Contact him at [email protected]. 

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