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Molders Economic Index: Are molders bypassed by the economic boom?

The U.S. economy is positively booming, yet a good number of molders say they see little evidence of such a boom. These are molders in all major fields: automotive and electronics, health care and packaging, machinery and office equipment.

While still growing, their rates of increase are well below the overall economy, which raced ahead at a 6.1 percent annual clip in the last quarter of 1998, the fastest pace in nearly 15 years. Recent data show the economy has kept up its momentum in the first part of this year.

The Commerce Dept. reported orders for manufactured goods shot up 3.9 percent in January while sales of existing homes climbed to an all-time high. It was the second straight month of huge gains in orders for durable goods, items meant to last three years or more.

Will Molders Benefit?

Just what is going on here? Through February, all manufacturing industries in the United States appear to have growth rates that lag well behind the rest of the country.

The rapid rate of job creation as well as low unemployment have bypassed manufacturing. For the past nine months, manufacturing has lost an average of 50,000 jobs each month.

Faced with a wave of low-cost imports, U.S. goods makers are under relentless cost pressure. On molders this has a curious effect. For instance, one Northwest molder of computer keyboard components had the highest output in terms of units in 1998 ever. But total sales, in dollars, were down almost 6.5 percent. The reason: as PC prices plunged below $1000, computer firms demanded cost cuts.

Similar reports of cost pressure can be heard in automotive, medical, toys, and packaging. Molders, on average, appear to produce more parts than ever, but faced with an almost deflationary climate, actual dollar sales stagnate or decline. The result: slimmer profit margins and less capital for new machinery and new capacity. Molders are faced with the choice of either cutting prices or seeing the molding jobs move offshore.

The complex way the U.S. government collects manufacturing output data does not allow for an easy analysis of what goes on in injection molding. For instance, The Journal of Commerce reported in February 1999 that between November 1997 and December 1998 imports of containers filled with "miscellaneous plastics goods" rose from 240 units to 400 units just at the Port of Long Beach, CA. That is an increase of 66.6 percent.

Match this with a recent report from Thailand showing production of Thai electronics rose in 1998, but the value of the sector's exports fell by 1.6 percent in 1998 due to falling prices.

Automotive Strong?

Actual car and truck sales in February set the pace for a record first quarter. Sales were up 12.6 percent to 1,290,695 units. Molders, however, have seen little benefit in this growth. The increase in imported car and truck parts has curtailed growth rates for domestic molders. Pricing pressures also eat into profit margins.

Automotive molders specializing in high-value-added subassemblies for luxury cars have a particularly hard time. Sales of luxury cars such as the Buick Park Avenue or the Cadillac De Ville dropped 11.3 percent in 1998. "This hurts us directly," said a molder of seat components near Cleveland.

Appliances: Bright Outlook

Initial data for 1999 as well as a review of all data for 1998 show molders serving the appliance market had a good year and will continue strongly in 1999.

Unlike many other markets, appliance components have been hurt far less by imports as domestic molders have retained market share. The boom in housing drives the appliance market, and with record housing figures expected for at least six more months, molders can anticipate at least one more year of growing orders.

The Association of Home Appliance Manufacturers in Chicago projects appliance shipments to increase well beyond 1998, during which they grew 6.2 percent. Confirming this are reports from several toolmakers saying orders for new molds to be used for appliances are at an all-time high.

At this point, sources among molders making appliance parts as well as parts for housing-such as pipe fittings or switch plates-say the strong housing market sustains an ever-growing segment of the economy, providing solid orders for molders. This is a market that used to be extremely cyclical, growing or declining often very rapidly and in tune with movement in interest rates.

Investing in the Future

U.S. molders continue to invest heavily in new machinery that, they hope, will give them the edge in terms of productivity over countries where labor costs remain low.

The strongest year in terms of total injection machine imports by units as well as total value ever was 1998, according to the U.S. Commerce Dept. At the end of 1998, total imports of thermoplastics injection molding machines from all countries into the United States had jumped from 4875 units in 1997 to 5038 units in 1998, a 3.3 percent increase in units. On a value basis, total machine imports jumped from $459 million in 1997 to $497 million in 1998, an increase of 8.27 percent.

Molders contacted by us stress that continued investment in new and more productive machinery is seen as the only real option to be able to win against low-priced imports. What does trouble molders, however, are reports on credit shortages as some banks have curtailed lending in the manufacturing sector. This, in turn, appears to delay the speed with which U.S. molders can revamp their plants.

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

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