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Molders Economic Index: Housing, automotive are up; electronics remains stagnant

We see more and more signs that the steep manufacturing recession may end soon. Durable goods orders are solid. Spending on housing continues to grow. Even exports in some segments show an upswing. Here are some predictions for U.S. molders for the next six months: 

• Orders for automotive parts will show a growth of 4.8 percent on an annualized basis with the bulk of the increases coming in August and early September. 

• Orders for electronic parts—everything from office machinery such as scanners and copiers to computers and mobile phones—will return to a 9.4 percent annual growth rate by September of this year. 

• Demand for appliance parts and items used in housing will show an annualized growth close to 6 percent. 

• Capacity utilization in molding plants will increase sharply and capital spending by U.S. molders will recover from the disastrous levels seen in early 2001. 

• Export orders for molded parts will grow—with most of the growth going to destinations such as Latin America, Mexico, and all parts of Asia except for Japan. 



Key Economic Data 
In May 2001 orders to factories registered their largest increase in nearly a year, boosted by stronger demand for cars, semiconductors, and industrial machinery. The Commerce Dept. reported that factory orders rose 2.5 percent, after falling 3.4 percent the month before. 

At the same time, the National Assn. of Purchasing Management (NAPM) said its key gauge of industrial activity rose in June, turning in its best performance in seven months. 

The Commerce Dept. report was particularly heartening for battered automotive molders. In May orders for transportation products registered the biggest increase, rising 3.5 percent, following a drop of 9.4 percent in April. Much of the gain came from stronger demand for automobiles and car parts. 

Orders for computers and electronic products increased 2.3 percent in May, after falling 13.7 percent in April. A huge 32.5 percent increase in domestic orders for semiconductors was a major factor in the advance. This implies that within a few months U.S. orders for computer parts and other electronics will show solid gains. 

The stronger-than-expected NAPM index for June supports arguments that the beleaguered U.S. manufacturing sector may be on its way to recovery. "This rise could indicate the worst is over," NAPM said in a statement. 

The overall index came in at 44.4, above forecasts for a reading of 39.3. The index was at 38.7 in May. 

A sharp drop in inventories and an increase in order backlogs were also positive signs for the manufacturing sector. "Production, new orders, order backlogs, and employment slowed their rate of descent. Inventories and supplier deliveries increased their rate of descent," NAPM noted. 

On the Negative Side 
While the American electronics sector should see growth later this year, outside the U.S. it remains stalled. Global sales of semiconductors in May declined more than 7 percent from April. Semiconductor sales have emerged as a very meaningful leading indicator for molders in the electronics business. An increase or decrease in sales is followed by about two months of corresponding changes in orders to molders. 

Orders were boosted by stronger demand for cars, semiconductors, and industrial machinery.
We will have many more months of reports before we know just how steep the manufacturing recession of the past nine months was. For instance, new data show that the U.S. economy barely inched forward in the first three months of the year. The Commerce Dept. reported that the gross domestic product grew at an annual rate of 1.2 percent from January to March, slightly slower than the government previously thought. 

Key economists also believe that the economy grew at a barely discernible .5 percent rate in the April to June quarter. Some even predict negative growth. 

The Commerce Dept. also reported that U.S. companies' profits in the first quarter posted their biggest decline in three years, reflecting the impact of higher energy and labor costs and slower sales. After-tax profits fell by 6.2 percent, following a 4.3 percent drop in the fourth quarter of 2000. Business investment in computers and other equipment decreased at an annual rate of 2.3 percent, the second consecutive quarterly drop. 

However, in the first quarter, consumer spending grew at an annual rate of 3.4 percent, up from 2.8 percent in the fourth quarter. Consumer spending accounts for about two-thirds of the economy and all projections are for solid growth in consumer spending later this year. 



Housing Remains Solid 
Construction spending inched up to another record high in May as the housing sector continued its strong performance in an otherwise weak economy, the Commerce Dept. reported in July. 

Spending in the construction sector rose .3 percent in May, its second consecutive monthly gain, to a record seasonally adjusted annual rate of $881.6 billion from a revised $879.2 billion in April. The May rate was 8.3 percent higher than a year ago. 

At the same time, sales of new homes rose .8 percent in May to their strongest level since March, Commerce reported. Similarly, the National Assn. of Realtors (NAR) said U.S. existing home sales rose 2.9 percent in May. 

In another indicator of a hot market, the number of existing homes available for sale fell 6.1 percent in May, according to NAR. 

For molders this will mean solid sales increases in all types of components used in housing: electrical parts, plumbing fixtures, and appliance components, just to name a few. Three molders in that market e-mailed us, saying that they have seen solid increases in orders since April 2001. 

(Base: July 1994 = 100)  Performance of Injection Molding Markets Making Up the Index
Major Injection Molding
End Markets
Relative
Weight
1/01
Final
2/01
Final
3/01
Final
4/01
Final
5/01
Prelim.
6/01
Early data
End 01
Forecast
Mid 02
Forecast
Transportation17.5698.7097.7195.78100.6498.65101.55103.46105.12
Packaging3.44127.84129.38131.02130.67129.71131.85133.29135.68
Building & Construction9.05134.88135.10135.33135.23133.98133.88138.48141.25
Toys3.2092.9392.0093.8193.8492.8792.9194.7896.29
Electrical/Electronic14.32210.34208.23208.03208.86208.86206.77213.66223.06
Furniture & Furnishings5.10130.83129.13126.55129.39125.28128.09133.27138.07
Consumer & Institutional27.48125.10124.48123.45124.85122.22123.60129.85132.31
Industrial & Machinery6.50125.21125.34126.22125.59124.96124.33129.86132.59
Medical4.90138.34138.90139.95140.98141.35142.39144.36147.97
Other8.45120.44120.54120.71118.86118.30116.48121.71124.02
The Overall Index100.00133.18132.53132.01133.34131.81132.47137.19140.68


About the Index 
In this exclusive monthly index, IMM provides an outlook on specific markets and the industry in general, isolating those data that directly relate to injection molding. MEI is a record of production statistics, indexed to the base period of July 1994 as 100. In January 2001, we began tracking, for comparison, the Federal Reserve Industrial Production Index. Historical data is provided for both indexes, as well as for key markets. 

The Molders Economic Index is prepared exclusively for IMM by Agostino von Hassell of The Repton Group, New York, NY; [email protected]. 

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