October 8, 1999
The continuing recovery in the U.S. manufacturing
sector is rather slow, showing less than dramatic results. That applies particularly to those injection molders who are anticipating solid increases in export orders, back to levels last seen in early 1997.Even though Asia is recovering quite nicely, it will be several months or more before molders here will see any significant increase in export orders. Medical devices—a hot export item in the past—are a good indicator: U.S. exports in 1998 of such devices declined a sharp 23 percent. This directly hurt injection molders, considering the large number of molded components in this high-value, high-precision application. From January 1999 through July 1999, exports rose just 7.8 percent.The story is the same in other molding markets where healthy exports gave injection firms that extra boost in growth back in 1996 and 1997. Exports are down for small appliances, durable goods, consumer goods, high-quality toy and entertainment devices and all types of electronics. Molders who make high-value-added, high-precision parts have been hurt the most.While the U.S. remains a strong market, high levels of imports in these applications from Asia as well as a slow market in Europe (see IMM’s International Molding Report) have limited expansion.Manufacturers, still feeling the lingering affects of the global financial crisis, cut 63,000 jobs in August. That more than wiped out an increase of 51,000 jobs in July, according to the U.S. Department of Labor. Note, by comparison, that 15,000 computer service jobs alone were added in August.Industrial machinery, office equipment, and consumer goods remain the hardest hit molding sectors, while molders supplying automotive, housing, and furniture are benefiting from an almost unprecedented boom.Future Orders Promise Growth
One of the most important indicators for the future health of injection molding is durable goods orders. Orders to U.S. factories for big-ticket manufactured goods surged in July, rising 3.3 percent, with gains posted for everything from industrial machinery and electronics to transportation equipment.In practical terms this means molders should see a corresponding order increase in August, September, and possibly October. An informal survey of a few molders making components for durables shows that overall orders for parts are again on the rise after slumping early in the year.In September, the Commerce Department reported that the 3.3 percent increase was the biggest gain since December 1998, when durable goods orders rose 3.4 percent. The increase in durable goods orders followed a .5 percent gain in June, which was better than what the government had previously estimated, and a 1 percent gain in May.Orders for industrial machinery, the category that includes computers and machine tools, had the strongest showing in July, rising a hefty 8.4 percent, the largest increase since January 1995. That followed sharp declines of 4.5 percent and 3.9 percent in May and June, respectively. Note here that through July 1999 imports of all types of injection molding machines are about 10 percent below 1998 levels, indicative of a slower rate of capital spending by molders.Also in July, orders for electronic and other electrical equipment, which include everything from semiconductors and circuit boards to telecommunications equipment and home appliances, posted a strong 5.9 percent gain in July, following a 3.5 percent increase in June.If transportation were excluded, overall orders for durable goods would have risen 3.7 percent, the largest increase since February 1997.Car Sales: How High?
How high can car and light truck sales go? Almost every month this year expectations increased. But few molders have seen corresponding increases in their parts output as low cost imports grab an ever growing share of the total automotive parts market. Robust August sales gains from Ford Motor propelled the U.S. vehicle industry to its strongest monthly selling rate in 33 years in August. New cars and trucks in August sold at a pace that would equal an annual total of 17.8 million units, marking the fifth time this year the seasonally adjusted annual sales rate topped 17 million. Total vehicle sales rose 20.4 percent to 1,485,049. The total a year ago was held back by two strikes at General Motors.Many now expect the 1999 light vehicle total to finish above 16.5 million units. The all-time record was 16.1 million units in 1986. What does this mean for U.S. molders? We anticipate molding output at U.S. plants for automotive parts to rise just 3.2 percent this year on a value basis, while imports of car and truck parts are likely to show a rise of 17.8 percent in the same time period.Productivity Issues
The implications of slower productivity are far from clear at this time, but are most likely to spell trouble if this trend continues. U.S. worker productivity slowed sharply in the second quarter of this year, says the Labor Department. Productivity, measuring the output per hour of workers outside the farm sector, rose at an annual rate of just .6 percent in the April-June quarter. The Labor Department has revised down its second-quarter estimate from a previously reported 1.3 percent gain. The .6 percent increase was much weaker than the 3.6 percent productivity growth recorded in the first quarter. Rising productivity can help to keep inflation low by allowing businesses to boost their output of goods and services without incurring higher labor costs. This report may force the Fed to increase interest rates one more time later this year, say many experts. This, in turn, would clearly impact manufacturing growth.The Molders
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