Molders Economic IndexAfter a summer lull recovery picks up

Early October’s economic indicators wiped out any concerns molders may have had this past summer that the manufacturing recovery had lost steam.

We are back to solid growth. Judging from the level of new orders and continued—some say surprising—strength in housing, we anticipate a strong Q4 and Q1 2005 for North America’s molders.

The main worry for molders is spiraling polymer and energy prices coupled with continued inability to raise prices to buyers of molded parts. Oil prices, we believe, will remain very high and will top out next year at around $60/barrel. Even adjusted for inflation, this is a major cost increase and will exert pressure on all aspects of manufacturing.

This will force continued strong investment in automation and manufacturing profits; thus capital spending plans are recovering well. Note here that the Robotics Industries Assn. (Ann Arbor, MI) reported that in the first half of 2004 orders for robots grew 12%.

The U.S. economy grew at an annual rate of 3.3% in the spring, the government reported. That was significantly better than a previous estimate but still the weakest showing in more than a year. The Commerce Dept. said the April-to-June increase in the gross domestic product—the country’s total output of goods and services—was revised upward by half a percentage point from its estimate just a month ago to 2.8% in Q2.

This month we project solid growth for 2005. Our annual outlook in the December 2004 issue will also help with your planning. Dept. of Commerce data show that through the first eight months of this year, capital spending has grown 8.6% from 2003.

Molders, based on various Commerce Dept. data that do not show all molding plants, have seen 12.4% profitability growth in the first seven months of 2004. This also is boosting the ability to finance capital equipment outlays. Overall total corporate profits were up 32% in Q1 2004 as compared to 2003.

Strong Manufacturing Growth

The best indicator of resumed, but slightly slower growth came from the Institute for Supply Management (ISM). ISM reported that its manufacturing index registered 58.5 in September, down from 59 in the previous month. The index has been above 50 since June of last year.“The manufacturing sector continued to grow during September, but at a slightly slower rate,” said Norbert J. Ore, chair of ISM’s manufacturing survey committee. “Both new orders and production remain strong, and employment growth has accelerated.”

Manufacturers continue to report strong pressure on material prices. The ISM index measuring prices registered 76, down from 81.5 the previous month, but still indicative of higher prices. ISM’s production index rose, registering 61.6 after a reading of 59.5 in August.

New Orders

September data were not available at the time of publication, but early indications are that new orders for all types of manufactured goods will have grown solidly in that month. ISM data show that in September growth of new orders slowed, with an index measuring them declining to 58.1 in September from 61.2 in August. However, we believe that the ISM data on new orders in September do not reflect the true picture of the level of new orders that have been registered for manufactured goods.

Preliminary reports from several molders show that new orders for parts containing injection molded products—primarily for housing and automotive—have grown strongly.

Durable goods orders dropped .5% in August, according to Commerce Dept. data, while July orders were revised to a 1.8% increase. Also in August, orders for computers and electronic products rose 4.1% after slumping 4.3% in July, while orders for civilian aircraft fell 42.8% after soaring 103.6% the previous month.

Strong New Home Sales

In August, new-home sales jumped 9.4%—the fastest rate in four years—and will directly benefit molders of appliances, furniture parts, and related items. Despite the rise in interest rates, the housing market continues to boom and is creating a major source of new orders for North American molders.

The Commerce Dept. reported that construction spending jumped in August to the highest level ever. The .8% increase to a seasonally adjusted annual rate of $1.02 trillion reflects continued strength in the housing market. “This was an extremely strong and encouraging report,” said Kenneth Simonson, chief economist at Associated General Contractors of America.

The government’s report on construction showed that residential projects by private builders rose 1.7% in August to a record high of $550.6 billion, on an annualized basis. Commercial construction increased .8% in August to an annual rate of $227 billion, its highest point since June 2002.

Getting a Fix on Automotive

From what we hear in the field, several major molders have been able to regain automotive molding business that had been lost to imports. Massive investment in automation improved productivity and the ability to meet stringent pricing demands from Detroit and still make a profit. And some molders are expanding operations, among them Atlantic Automotive Components LLC, Nicholas Plastics, TKA Plastics Corp., and Meridian Automotive Systems Inc.The trade data are not yet clear, but we do see a minor decline in imported car parts as Chinese and other Asian molders direct more of their output into their home markets. Import pressure may rise in late 2004 and early 2005: Chinese automotive sales are slowing some.

September was a strong month for U.S. car and light truck sales, up 5.6% from 2004 and at a rate of 17.51 million units/year. For a change, imports lost overall market share, dropping below the 40% mark.

General Motors had a superb month, boosting sales 19.9%. Chrysler saw sales jump 10.1%, but Ford was down 6.8%. Toyota saw sales improve 10.3%, while Honda lost 5.6% in sales.The outlook for the rest of 2004 is excellent, say molders and experts in car sales. The strong growth in consumer spending will continue to maintain car sales at a high level. The result: Molders across North America will see solid growth for now.

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