Economic News Blog
16. October 2012

August Machine Tool Orders Above 2,000 Units – Sign of Strong Market

 According to USMTO, machine tool orders in August 2012 were 2,011 units and $425,511,000. This is the 11th time in the last 13 months that orders have been above 2,000 units, which is historically a sign of a very strong machine tool market. However, August was the second month in a row that orders contracted compared to the same month one year ago. In August 2012, orders were 4.1% below the level of orders in August 2011. This is an increase in the rate of contraction in the one-month rate of change. The annual rate of change is still growing, but it has been growing more slowly since May 2011.

 
But, this is not unexpected. My original forecast for 2012 (from September 2011) forecasted a much larger decrease compared to August 2011. My revised forecast for 2012 (from August 2012) forecasted 2,050 units to be sold in August 2012. This forecast was too high by just 1.9%. The slowing growth in machine tool sales was expected because industrial production, while growing, had been slowing for most of 2011. Industrial production leads machine tool sales by 12-18 months.
 
The two best leading indicators for machine tool sales are industrial production and the U.S. dollar exchange rate. The annual rate of change in industrial production has been growing faster each month for the last 10 months, and the current annual rate of growth (8.7%) is quite strong historically. The trend in industrial production of accelerating growth is a positive indicator for machine tool sales in 2013.  Based on industrial production we should see accelerating growth in machine tool sales in 2013.
 
 
 

The annual rate of change in the broad exchange rate for the U.S. dollar is growing at an accelerating rate (moving down in the chart below). When the dollar is gaining value relative to other world currencies, machine tool orders tend to contract. This indicator is pointing to slower machine tool sales in 2013. But, the Fed’s announcement of further quantitative easing should cause the dollar to lose value relative to other currencies. Therefore, we could see this indicator begin moving in the other direction in 2013 and be supportive of stronger machine tool sales.

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