A fast review of economic data made available in January 1999 would show only increases: high housing starts, increased new home sales, higher production rates for computers, record-setting automotive sales, low unemployment, and very low interest rates fueling a booming economy. Look behind these national data, however, and you find evidence of what molders find troubling.
Regionally, the west coast and the mountain states are weak, showing some declines where other states show increases. For instance, a Nevada manufacturer of extruded pipe and molded pipe fittings saw actual sales decline 18.7 percent in the first eleven months of 1998 as regional housing starts slowed sharply. In contrast, a molder of pipe fittings in the Dallas area saw sales jump 11 percent in the same time period.
What this adds up to is rather simple. The economy of the western United States needs a turn-around in Asia soon to avoid sliding into a regional recession-and some regional data from the Federal Reserve indicate that this may already be happening. Should Asia's recovery be delayed well beyond the end of 1999, the weakness in the West could start to hurt the rest of the U.S. economy.
Housing Is Strong
Support for overall sustained growth came in November 1998 with sales of new homes rising to record levels. For the first 11 months of 1998, new home sales are 9 percent ahead of the healthy levels set in 1997.
1998 already has proved to be the busiest year for builders since 1987. During the first 11 months of the year, builders started 1.50 million units compared with 1.47 million for all of 1997 and 1.62 million during 1987. Projections for further growth -with beneficial spillover into appliances, furnishings, and electrical goods-are almost uniform among economists. Also, the all-important consumer spending is also seen to remain strong.
Persistently low mortgage rates will continue to fuel the most powerful housing market since the post World War II period and may assure molders serving this diverse market solid growth during 1999.
However, while overall national data are a bullish picture, the West and mountain states' regional weakness is very much a reflection of collapsing exports to the Pacific Rim; more manufacturing businesses and molders in that part of the country have strong trade ties with Asia than anywhere else in the U.S. This regional weakness translates into negative growth for new home sales, reduced manufacturing output in almost all industrial sectors, and an increase in regional unemployment.
Car and Truck Sales
The strong car and light truck sales recorded in 1998 have been of little benefit for automotive molders. 1999, even with strong sales predictions, shapes up as another year of little or no growth for domestic molders.
At this time, General Motors, Ford, and DaimlerChrysler project 1999 to be the sixth consecutive year of high sales around the 15 million unit mark. December 1998 data show car and light truck sales came in at a very high 15.5 million annual rate.
Car and truck imports are up for 1998: Domestic manufacturers saw overall sales decline by 1.3 percent in terms of share of the total markets with importers showing a corresponding increase.
Why does this leave domestic molders with little growth? During the past five years, the trend towards using more and more imported car and truck parts has picked up steam with, by best estimates, almost one third of all transportation components coming from abroad, up from just 14 percent in 1994.
Thus, with the rate of assembly of domestic vehicles growing, there has been no corresponding increase in business for molders who are unable to compete against imports from Northern Mexico, Canada, and the Pacific Rim.
The pressure that creates increasing imports continues. With a global car- and truck-building capacity of 70 million units and actual world sales in 1998 at less than 50 million units, battered economies such as Thailand, Malaysia, Japan, and Singapore are willing to cut prices on their exports not only because of weakened currencies but also just to keep people employed and social unrest under control.
Industrial Production Falls
Confirmation that the overall economy is in a somewhat weaker state than generally assumed came in January. Production at the nation's factories, mines, and utilities declined in November 1998 for the fourth time in six months. Industrial production declined .3 percent in November, following a .2 percent increase the month before, the Federal Reserve stated. Manufacturing output was flat as declines in production of iron and steel, farm machinery, aircraft, and autos offset increases in computers, household appliances and construction materials. The Federal Reserve said "many U.S. manufacturers have been struggling [in 1998]," with lost export sales to Asia and facing growing competition from imports.
In December 1998, U.S. manufacturing had its weakest month since the end of the 1991 recession. This is based on the very authoritative index of manufacturing activity prepared monthly by the National Assn. of Purchasing Management. The index dropped to 45.1 in December from 46.8 in November 1998. The index has now declined for three months in a row and has been below 50 since June. The December index was at the lowest level since it was at 44.5 for May 1991 as the economy started to recover from the last recession.
The Molders Economic Index is prepared exclusively for IMM by Agostino von Hassell of The Repton Group, New York.