Molders Economic Index: Strong finish for 1998 spells strength for 1999

As final data for 1998 trickle in, it has become apparent that the U.S. economy resumed very rapid growth this past November and December. Early data for January—in particular bullish car and truck sales and stronger than expected retail sales—indicate this trend continues.

The growth is so strong that an interest rate increase by the Federal Reserve is no longer seen as unlikely even though economists there say the economic strength seen is regional only. The U.S. economy expanded at a 5.6 percent annual rate in the last three months of 1998 and at 3.9 percent overall for the entire year, according to the Federal Reserve.

The West and the Mountain States appear to have weakening economies evidenced by rapidly growing piles of containers at major export centers such as Los Angeles and Portland. The U.S. continues to import, but exports to economically troubled Asia continue to slide. Unemployment has shown a slight uptick in the West as manufacturers there are reacting to a drought in export orders.

The surge in imports may also have caused what some call a recession in manufacturing. The monthly report by the National Assn. of Purchasing Management shows the production index rose to 53.1 percent in January, up sharply from 46.8 percent in December, the first increase in four months. A reading above 50 indicates more than half of the businesses surveyed reported expanded production as opposed to contraction.

These data indicate—to be confirmed later this year when detailed reports for all of 1998 become available—manufacturers in most markets had to cut production in the July through November 1998 period, causing a mini-recession.

Note also that the National Tooling & Machining Assn. now predicts overall mold sales in 1998 will have declined 11 percent and may decline yet another 8 percent in 1998.

Strong Growth Everywhere

Injection machine imports—after showing no significant growth for several months—jumped sharply last November. Anecdotal evidence indicates continued strong growth in December and full order books for importers in January.

Imports of all thermoplastic injection molding machines as reported by the Commerce Dept. rose by 10.26 percent in November 1998 to an 11-month total of 4619 units. By November 1997, a total of 4189 machines had been imported. This means 1998 will be the strongest year of the past seven years for imports. Increases in resin imports—mostly from Europe but also from locales as diverse as Taiwan and Japan—indicate continuing boom times for molders.

Similar evidence of growth abounds: Orders placed with U.S. factories registered the largest increase in a single year in December 1998, as demand for everything from computers to turbines surged. Up until December, it had been a relatively slow growth year. For instance, in December 1998 overall orders for all types of industrial machinery increased a very strong 7.4 percent after having shown almost no growth in November 1998 and an 8.9 percent decline in October 1998.

According to the Commerce Dept., December factory orders rose 2.3 percent. In November, factory orders rose a revised .4 percent. Details are impressive: Factory orders for durable goods jumped 3.1 percent in December after increasing 1.9 percent in November 1998. Nondefense capital goods jumped 7.4 percent after registering a 6.7 percent rise. And productivity seems to show strength as indicated by the .1 percent decline in unfilled orders.

Electronics Stronger Than Ever

Worldwide, personal computers grew 15 percent in 1998, led by strong demand in the United States, where 37 percent of all households are now connected to the Internet, according to Dataquest Inc. (San Jose, CA).

Other data show the sale of cellular phones in the United States more than doubled in 1998; sales of computer peripherals—such as printers, external disk drives, scanners, copiers, and plain paper fax machines—jumped an average of 18 percent in 1998 as compared to 1997.

The detailed import data from the Commerce Dept.—at this time available only through November 1998—show that foreign manufacturers—particularly those in Malaysia, Thailand, the Philippines, Taiwan, and China—were able to claim a substantial portion of the growth recorded in the United States. This allowed molders in those countries to fill gaps left by declining regional demand. But what about U.S. molders?

Commerce data tracking dollar output of factories making computers and peripherals show a strong 12 to 15 percent increase. This means those U.S. molders grew just as fast as the overall market but were unable to seize growth from importers. For instance, Dell Computer—which saw 1998 sales jump 65 percent—sourced the increased demand from computer components almost equally in

the United States and abroad. A spokesperson at one molder says the trend toward low-cost PCs has forced computer firms such as Dell or Compaq to increasingly look abroad for low-cost components.

The outlook is for at least 15 percent more this year. A wave of Y2K buying and a strong trend to replace older business PCs every 24 to 30 months (from 36 to 48 months in the early 1990s) will drive this growth.

Housing is Hot

Molders supplying parts for new homes and office buildings, as well as for the expanding home remodeling market, can anticipate strong sales for most of 1999. Sales of new homes in 1998 set a new record, jumping to 888,000 units or by 10.4 percent compared to 1997. Overall sales are at the highest level ever. Sales of all homes, existing and new, jumped 13 percent in 1998.

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