Molders Economic Index: Recovery stays on trackMolders Economic Index: Recovery stays on track

Agostino von Hassell ([email protected]) of the Repton Group, New York, NY, prepares this index.

More and more injection molders have seen several months of steadily increasing orders for molded parts. The best-performing markets are all housing-related, including furniture and appliances. Also strong are medical disposables, some medical machinery, and some electronics components.

Overall economic data support this. For instance, manufacturing growth leaped to a 20-year high for a third straight month in January. The Institute for Supply Management (ISM) said its manufacturing index rose to 63.6 in January, up from a revised mark of 63.4 the prior month. It was the first time since 1983 that the index had stood above 60 for three straight months.Less positive was the report that some of the index’s components slipped. The new orders index fell to 71.1 from 73.1 the prior month but remains at some of the highest levels since the early 1970s. The ISM predicted that the current fast growth is unlikely to slow much in coming months, as factories are still scrambling to keep up with demand. The production index rose to 71.1 in January from 69.2.

A solid indicator of future growth was overall factory orders for December, which the Commerce Dept. reported jumped by 1.1% after dropping .9% in November. Much of this strength reflected higher demand for nondurable goods (up 2%), which means more business for packaging molders. For all of 2003, orders to U.S. factories rose by 3.9%—the best showing since 2000.

Orders for durable goods rose by .3% in December, an improvement from November’s 2.4% decline.

The Housing Engine

Molders are benefiting from strong construction spending and housing starts. Even if housing starts were to decline later this spring—likely if the Federal Reserve raises interest rates—the number of new houses in progress ensures a steady stream of orders for most of 2004.

Overall, U.S. construction spending rose less than expected in December. According to the Commerce Dept., construction spending rose .4% to a seasonally adjusted $933.2 billion in the month from a downwardly revised $929.8 billion in November.

Still, it was the sixth consecutive month in which construction spending reached a new plateau. Outlays for private construction, private residential construction, and state and local construction all rose to fresh records.

The Commerce Dept. also reported that that housing construction increased by 1.7% from December to November—ending 2003 on a high note. For all of last year, the number of housing units that builders broke ground on totaled 1.85 million, up from 1.70 million in 2002. The total for 2003 marked the strongest performance since 1978, when housing construction came to 2.02 million units.

Housing permits—a good sign of current demand—increased by 3.3% in December from the previous month. For all of 2003, permits totaled 1.86 million units, the highest since 1972 and up from 1.75 million in 2002.

Injection molders in the U.S., Mexico, and Canada remain the primary beneficiaries of this housing boom. Items such as plumbing and bathroom fixtures, window components, electrical parts for housing, appliance parts, and furniture have seen little effect from the wave of imports in other markets. As a result, these markets will enjoy healthy growth in 2004.

Slower GDP Growth

It couldn’t last. In Q4 2003 economic growth slowed to a more manageable 4% annual rate, down from the blistering 8.2% rate seen in Q3 2003 (based on Commerce Dept. data).We anticipate GDP growth to hold at this level for most of 2004 and maybe even go somewhat higher to 4.5% to 4.8%. Injection molding overall should see a corresponding growth rate, which will be a bit higher than overall GDP growth.

Exports of goods and services jumped 19.1% in Q4, nearly twice the Q3 increase, as a weaker dollar helped make U.S.-produced exports cheaper.

Matters of Trade

The U.S. trade deficit narrowed unexpectedly in November to $38 billion, as civilian aircraft sales pushed exports to their highest level in three years, the Commerce Dept. reported. Overall exports rose 2.9% to $90.6 billion, while imports retreated slightly to $128.6 billion from October’s record high. Basic manufactured products have seen little or no export growth in the past year.

However, in 2003 U.S. exports rose steadily, aided by a weaker dollar. The reversal has led European policy makers to express concern that the euro’s rapid rise against the dollar could snuff out an export-led recovery in Europe.

China is the major trade problem and hits many molders directly as molded parts from China replace items molded in North America. Through November 2003, the trade deficit with China totaled $114.1 billion, surpassing the record of $103 billion set in 2002.

U.S. exports to China also have grown and hit a record $3.3 billion in November. However, few molders benefit from that export growth. For instance, automotive parts imported into China come mostly from other Asian countries and not from U.S. molders. And it is a big and rapidly expanding market. In January the official New China News Agency reported that imports of cars and parts rose 84% last year to $14.45 billion.

Automotive: Slow

The two largest U.S. automakers reported a drop in sales for January, while Japan’s Toyota Motor Corp. and Nissan Motor Co. continued to surge ahead in the U.S.

Overall, domestic and foreign automakers reported a .7% drop in car and light truck sales. General Motors Corp., the world’s largest automaker, posted a 1.8% decline in new car and truck sales for the month, while Ford Motor Co. reported a decline of 9.8%. Nissan said its sales soared 25.7%, while Toyota’s climbed 15.8%. Honda sales fell 3.7%. DaimlerChrysler AG’s Chrysler Group was alone among the Big Three domestic automakers to report a positive month, noting a 9.4% increase. The increase at Chrysler was due to a 21.5% increase in truck sales; its car sales fell 23.2%.

For automotive molders the impact is immediate: Orders from GM and Ford are down and from Chrysler up by a fraction. Imported car parts are gaining; China is emerging as a key supplier of automotive parts.

Molders supplying foreign assembly plants in the U.S. are enjoying steady increases in orders. Molders are also benefiting from the shift toward trucks and SUVs—this means larger parts with better profit margins.