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U.S. manufacturing struggling under weight of cheap commodities, strong dollar and flat export markets

Recent reports on manufacturing haven't been exactly upbeat. But while manufacturing generally has fallen on the "contracting" side of the equation (see the Institute for Supply Management's Report on Manufacturing for November published Dec. 1) and a new report released by the Association for Manufacturing Technology (AMT; McLean, VA) reveals that orders remained "sluggish" in October, the latest report from SPI: The Plastics Industry Trade Association (Washington, DC) said plastics machinery shipments are showing a "strong performance."

Recent reports on manufacturing haven't been exactly upbeat. But while manufacturing generally has fallen on the "contracting" side of the equation (see the Institute for Supply Management's Report on Manufacturing for November published Dec. 1) and a new report released by the Association for Manufacturing Technology (AMT; McLean, VA) reveals that orders remained "sluggish" in October, the latest report from SPI: The Plastics Industry Trade Association (Washington, DC) said plastics machinery shipments are showing a "strong performance."

Plastics, it appears, is the stronger segment in the manufacturing sector, but even that isn't saying much when one looks at the numbers. The SPI report from the Committee on Equipment Statistics (CES) called the Q3 2015 shipments "another strong performance." However, Bill Wood, the economic analyst who reports on the plastics machinery markets for CES, noted the trend in the CES shipments data flattened out in the middle of 2015, "but at a high level," he added. "Activity levels in the U.S. manufacturing sector slowed in the third quarter, and plastics machinery suppliers felt the effects. But the plastics industry continues to expand faster than many other industrial segments."

Wood projects that in 2016, real GDP in the United States will continue grow at a pace that is at least in the range of 2.0 to 2.5%, with demand for plastics machinery remaining solid due to the positive effects of steadily rising aggregate demand.

Shipments of primary plastics equipment (injection molding, single-screw extrusion, twin-screw extrusion and blowmolding equipment) for reporting companies totaled $300.6 million in Q3. This was a "small gain" of 0.8% from the total of $298.4 million in Q2 of 2015, but was a "drop of 4.6% when compared with the same quarter last year." For the year-to-date, the total value of shipments is almost exactly the same as it was during the comparable period last year.

The value of injection molding machinery shipments declined 2.4% in Q3, when compared to last year, said the SPI CES report. The shipments value of single-screw extruders advanced 3.3% from last year. The value of shipments of twin-screw extruders (including both co-rotating and counter-rotating machines) dropped 37.6% in Q3. The quarterly estimated shipments value of blowmolding machines dropped 9.0%. New bookings of auxiliary equipment for reporting companies totaled $118.8 million in Q3, a jump of 9.8% when compared with the total from Q3 of last year.

Wood notes in the SPI CES report that the decrease in plastics machinery shipments was a weaker performance than the year-over-year increase of 2.2% (seasonally-adjusted, annualized rate) in total business investment in industrial equipment—plastics machinery is a sub-set of this category—as compiled and reported by the Bureau of Economic Analysis for its quarterly GDP data release. The Q3 decline in CES data was also weaker than the other major industrial machinery market indicators, compiled and reported monthly by the Census Bureau, which showed that the total value of industrial machinery eked out a gain of 0.3% in Q3 compared to the same period in 2014.

Another report, released on Dec. 14 from AMT, showed that orders for manufacturing technology (machine tools and other manufacturing equipment) for the month of October were down 0.3% from September, and year-to-date were down 17.4% compared to same period in 2015.

"While the general economy continues to grow at a moderate pace, the manufacturing sector is struggling with the effects of a strong, dollar, reduced commodity prices—especially oil—and struggles in key export markets like China," said AMT President Douglas K. Woods. "As the broader industry faces this slowdown, manufacturers are not making significant capital investment in new manufacturing technology."

The U.S. GDP is forecast to grow 2.4% in 2015, but that growth is being fueled mostly by consumer spending, noted the AMT report. Economic data around manufacturing isn't as positive, said the AMT report, noting also the Dec. 1 ISM Manufacturing Report on Business that seemed to get a lot of attention from economic analysts.

The AMT's US Manufacturing Technology Orders report showed continued strength in metal forming and fabricating (molds, tools, jigs and fixtures) in the Southeast (+19.0%), South Central (+35.3%) and the West (+33.9%). The Northeast, North Central-East, North Central-West were all in negative territory, putting a drag on the overall metal forming and fabricating manufacturing technology of -14.2%.

"Market flatness can be expected to remain into 2016, and signs pointing to short-term interest rate hikes from the Federal Reserve could potentially hamper the consumer spending that is currently driving economic growth," said Wood. "Manufacturing is the real driver of sustainable economic growth, and tax provisions, such as bonus depreciation and Sec. 179 expensing, encourage investment in plants and equipment necessary for manufacturing strength and competitiveness. Factories don't have a great deal of excess capacity, meaning any uptick in activity could help the manufacturing economy bounce back."

The SPI's CES said that responses from the Q3 survey show that plastics machinery suppliers "remain optimistic about market demand for their products in the coming months, with 89% of respondents expecting conditions to either improve or hold steady. For the coming year, 94% expect conditions to be steady or better. Quoting activity in Q3 was steady or higher for 84% of the survey participants, said the report.

However, Mexico's booming manufacturing segment is the bright spot in the global outlook for machinery suppliers, with a majority of respondents expecting market conditions to improve in that region in 2016. The outlook for Europe and Asia is "steady-to-weaker." North America and Latin America are expected to be "steady-to-better."

When asked about their expectations for the major end markets for plastic products, a majority of the respondents indicated that the medical sector will improve in the next 12 months and the automotive sector will be steady-to-better. A solid majority expects that all other major end markets will experience steady conditions in the coming year, concluded the report.

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