is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Molders Economic Index: Minor confusion clouds growth for molders

Article-Molders Economic Index: Minor confusion clouds growth for molders

Will higher interest rates bite and will they bite hard? Will they slow down the solid growth in manufacturing and thus injection molding output?

Initial evidence shows that, at worst, two-tenths of a percentage point will be shaved off projected growth for injection molding in the U.S. for the balance of 2000. Cumulative manufacturing growth for molders should exceed 4.3 percent for the year. The most recent economic data create some confusion and doubts. But looking at other key trends-in particular a strong recovery in Japan-seems to confirm our projection of a solid 2000 and an equally solid first half of 2001.

Let's try to sort out what is happening: A key gauge of future U.S. economic activity fell .3 percent in February, the biggest monthly drop in more than four years, suggesting that rising interest rates have begun to take a toll. The Conference Board's Index of Leading Economic Indicators dropped to 106 in February after rising a revised .2 percent in January to 106.3. But the data component of the Index that projects future growth actually showed a slight boost.

While 4Q 1999 saw a sizzling 7.3 annual growth rate for the U.S. economy, data now suggest slower growth for 1Q 2000. We project a growth rate of 4.1 percent. Overall manufacturing output in the first quarter will have grown 3.9 percent; injection molding output will beat that estimate, growing well above 4.3 percent.

Why is molding growing faster than the economy for the first time in five years? The answers are increased exports and decreased imports. Exports of manufactured plastics products-a category that also includes injection molded parts-grew 11.5 percent in the first two months of 2000 as compared to the same period in 1999. Imports of goods that contain numerous injection molded parts declined in the first two months of 2000 by 3.8 percent as compared to that period in 1999. The reasons: When Asian economies are stronger they export less to the U.S. and have growing demand for U.S.-made products.

An indicator of slightly slower growth is that inventories at wholesalers rose in February at the fastest pace in three months and sales declined for the first time since July. Wholesale inventories increased .7 percent in February to $308.6 billion, after rising a revised .6 percent in January, the Commerce Department reported. Sales decreased .2 percent to $241.1 billion after a revised January gain of .6 percent a month earlier. Still, February sales were 11.4 percent higher than a year earlier.

Industrial production at the nation's factories, utilities, and mines rose at a slower-than-expected pace in February as the output of cars and appliances fell after posting strong gains the month before. The Federal Reserve reported that production increased by .3 percent in February.

That followed a big 1.1 percent leap in production in January. Meanwhile, the Fed said that operating capacity in the industrial sector was 81.7 percent in February, the same as the month before. Capacity was below levels usually associated with a pickup in inflation.

Other data suggest that the impact of higher interest rates and steep oil prices are having some effect. Injection molders are essentially unable to raise their product prices and are thus forced to absorb the results of higher oil prices, which are driving up costs for parts distribution. And the only way molders can keep on doing this is through increased productivity. That means new machines and new computers.

The increase in interest rates has done little to slow down the rate of capital investment. Imports of new injection molding machines are at the highest levels in 10 years. And anecdotal evidence suggests that domestic machinery makers have enjoyed a very strong first quarter. Overall machinery sales are running 10 percent higher than the first quarter of 1999.

Construction spending unexpectedly rose in February for a fifth straight month as builders stepped up work on new single-family homes and office buildings, government figures showed. This is excellent news for molders in key markets such as electrical, furniture, appliances, and consumer durables, and should ensure solid business for molders for the next six to eight months.

Construction spending rose 1.5 percent in February to a record $758.7 billion annual rate, the Commerce Department said. In January, spending rose a revised 2.2 percent to a $747.6 billion rate. New home sales are on a pace to set a new record this year, rising above the records set in each of the past two years' Commerce Department figures. This growth comes even as the rate on a one-year mortgage increased to a five-year high of 6.78 percent.

Sales of pickups and SUVs in March powered Ford Motor Co.'s U.S. sales to a record high for any month, and helped General Motors Corp. offset a slump in car sales. As a result U.S. molders saw, and are likely to continue to see, increased orders. Total industry U.S. sales in March were running 8.5 percent ahead of last year's pace. The rate of vehicle sales last month would translate to about 17.7 million sales over a full year.

Strength in Japan
Among all the data, probably the most important come from Japan, which seems to have embarked on a full-scale recovery in manufacturing. This means, in practical terms, that Asia overall will boom, reducing imports into the U.S. as local economies use more of their own output. It also increases opportunities for U.S. molders to export more products to Asia.

Japan's industrial output rose for a second month in February, as companies made more electrical machines and automobiles amid increasing overseas demand. Output rose 3 percent in February from January. From a year earlier, production rose 8.4 percent, the biggest increase in 11 years.

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


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.