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xxxxx All signs support solid growth in 2000

March 11, 2000

5 Min Read
xxxxx  All signs support solid growth in 2000

The economic data for late 1999 as well as the first reports for the initial days of January support our past projections that 2000 will be yet another solid growth year. It will be at least April or May before the impact of the Y2K-related inventory increases can be measured. In the meantime, there is little that should worry injection molders.

Signs of Strength Abound
Factory orders rose 1.2 percent in November 1999 as strong demand for electronic products gave American manufacturers their first increase in orders since August. The November advance followed no gain in October and a 1 percent decline in September, the Commerce Department reports. Orders had risen by 1.3 percent in August 1999.

The November order increase will sustain the injection molding market for at least six months. Significant for injection molders in high value-added applications such as medical, electronic, and electrical parts are data showing accelerated growth. November 1999 demand was led by a $3 billion increase in orders for electrical equipment, which rose 8.4 percent over October, the biggest gain for this category since July 1998.

Demand for electronic components, a category that includes computer chips, shot up by 32.9 percent.

November signs of strength continued into preliminary December reports. The U.S. industrial sector of the economy grew in December for the 11th consecutive month, but at a slower pace than in November, the National Assn. of Purchasing Management (NAPM) reported in early January. The group said its index, based on a national survey of executives who buy raw materials and supplies for manufacturing companies, registered 55.5 percent in December, compared with 56.2 percent in November. Any reading over 50 is a sign of expansion.

Preliminary reports also show that 1999 holiday sales were very strong. This may help in drawing down inventories and in setting the stage for new orders in January and February.

Another sign of strength is that injection machine import levels increased in late 1999 as injection molders resumed investment in new production capacity.

Forecasts from many groups for 2000 are bullish. NAPM in early January projected 7.7 percent growth in 2000 for all of manufacturing. That forecast names lead sectors: industrial and commercial equipment and computers, electronic components and equipment, and instruments and photographic equipment—all sectors high in use of injection molded parts.

A Strong 1999
The strength in manufacturing for 1999 after a very slow 1998 sets the stage for a strong 2000. Reports continue to come in on just how strong manufacturing growth was in 1999. In late December the U.S. Government increased its estimate of U.S. economic growth in the third quarter as consumers spent more on services and businesses stockpiled more goods than previously reported.

U.S. GDP for Q3 rose at a 5.7 percent annual rate, the fastest since the fourth quarter of 1998. Growth had slowed to a 1.9 percent rate in the second quarter from 3.7 percent in the first. Q4 1999 is likely to come in at about 4.7 percent GDP growth; if so, all of 1999 showed 4 percent growth.

Molders making parts for office equipment, computers, and business and consumer electronics should also be happy with Department of Commerce reports of late December. Spending on business equipment and software rose 15.7 percent in the third quarter 1999. And all manufacturing third quarter exports grew at an 11.5 percent pace.

Automotive in 2000
The year 1999 set a new record for auto sales as consumers bought 16.9 million new passenger cars, pickups, minivans, and sport utility vehicles. This is a 9 percent increase over 1998. Yet few injection molders in the United States saw their automotive parts sales grow quite as fast. Predictions for yet another strong year with sales anticipated to be in the 16 million-unit range carry relatively little promise for U.S. molders.

First of all, importers of cars and trucks grew relatively faster than domestic transportation companies. And plants in the United States of giants such as Toyota, Honda, BMW, and DaimlerBenz had excellent years. These transplants still use comparatively fewer U.S.-sourced parts than the traditional domestic makers.

Toyota in late December 1999 reported plans to increase car production in the United States by 16 percent to 1.45 million units. The company also plans to increase at the same rate sourcing of automotive parts from U.S. producers.

The strong wave of parts imports, which grew sharply in 1999, makes it difficult to compete. While the recent weakness of the U.S. dollar as compared to Asian currencies may help slow such growth, we anticipate more import growth in 2000 for this category. Major automobile firms are exploring options on how to expand parts production in Asia. For instance, Delphi Automotive Systems Holdings Inc., the world’s largest auto parts maker, opened a new large facility in Indonesia in December 1999. Others are expected to follow.

Housing: Some Weakness
The recent jump in interest rates has had a significant effect on the housing market. But overall, molders should anticipate little slowdown for this market in 2000. Sales of new and existing houses tend to drive activity at molding plants serving markets such as appliances, electrical parts, and furniture.

In November sales of new homes fell 7.1 percent, the biggest decline in two years. The drop in single-family sales followed a big 9 percent October increase. Even with the setback, the Commerce Department reported in early January, homes were sold at a seasonally adjusted annual rate of 865,000 units in November.

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