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Slow yet steady growth in manufacturing

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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