8. October 2012
July Machine Tool Sales
With Incomes and Spending Increasing, Indicators Point to Temporary Pause in Accelerating Growth of Industrial Production — Positive Indicator for Future Machine Tool Sales
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According to USMTO, there were 1,849 machine tool units sold in July 2012. This was 1.5% fewer units sold than in July 2011. My original forecast for the month was off by just 0.05%. My revised forecast for July was too high by 8.2%. For the year, my original forecast is too low by 5.7%.
Other than February 2012, unit machine tool sales have been essentially flat in 2012 compared to 2011. The annual rate of change continues to show decelerating growth. Month over month real dollar sales have contracted for two months in a row and three of the last five months.
Unfortunately, I do not have links to the charts this month. We are in the process of revamping our corporate website to provide better market research information and tools.
Fed Funds Rate
While there isn’t any change in the rate, the Fed finally announced QE3. Some have taken to calling it QEternity, since the Fed did not put an end date to this round of quantitative easing. While I’m completely against what the Fed is doing, in the short term it tends to help machine tool sales in two ways. First, when the Fed prints more money it devalues the dollar relative to other world currencies. Historical correlations show that when the dollar loses value machine tool sales go up. Currently, the dollar is appreciating. This round of quantitative easing will likely put an end to that appreciation, which will support machine tool sales. Second, money printing supports capital investment. It allows decision makers to justify new projects that otherwise would not be started without the new money being created. I could bore you with a long-winded explanation of that but I won’t.
Real Personal Income Excluding Government Transfers
Month over month, real personal income has grown at an accelerating rate since December 2011. This is starting to show up in the annual rate of change as it showed accelerating growth for the first time since June 2011. Incomes continue to be a positive indicator for future machine tool sales.
Real Consumer Durable Goods Spending
Spending on durable goods continues to hit all-time highs. Personal income, as a leading indicator of spending, continues to support further increases in spending. However, spending is rising much faster than the growth in incomes would indicate, most likely due to household debt flows increasing. The month over month rate of change (8.1%) was the second fastest rate of growth since March 2011. The annual rate of change is at its fastest rate of growth since November 2011 and continues to be a positive indicator for future machine tool sales.
Consumer Durable Goods Industrial Production
Month over month growth rates have been trending down since April 2012. While the annual rate of change continues to grow faster, we may see the peak rate of growth soon as production may have raced ahead of spending slightly. However, with both incomes and spending increasing, the indicators are pointing to only a temporary pause in the accelerating growth of industrial production. This continues to be a positive indicator for future machine tool sales.
Metalworking Business Index
With a reading of 46.6, the Metalworking Business Index showed that the metalworking industry has contracted for the third month in a row. The August MBI provided an indication that the industry would break out of its slowing trend, which began in March 2012. However, the results of the September MBI indicate that the slowing trend continues. With some key leading indicators for metalworking still strong, the question to be answered is how long and how far will the industry contract? Is this a temporary slowdown while the industry waits to see what happens in the election or is this slowdown linked to a world economy that is already slowing at a more significant rate?
Five of the six sub-indices used to compute the MBI had a negative impact on the MBI in September. The new orders index showed faster contraction in September, reaching its lowest level since July 2009. After moving from contraction to expansion in August, the production index moved back into contraction in September. New orders have been contracting faster than production and this has put pressure on backlogs. The backlog index has contracted for six consecutive months and is at its lowest level since July 2009. Employment continues to expand as it has for 17 straight months. Reports from the IMTS indicate that virtually every company affiliated with the metalworking industry is still looking to hire more people. Supplier deliveries was the only sub-index to make a positive contribution to the September MBI. Delivery times lengthened more during the month.
Future business expectations continue to move lower, reaching their lowest level since July 2009. Also, future business expectations have been below average for the last three months.