September Machine Tool Sales — Sales Reach Highest Number of Units and Dollars Sold Since March 2008
According to U.S. Manufacturing Technology Orders (USMTO), September machine tool sales were 2,814 units and $545,065,000 dollars. This was the highest number of units and dollars sold since March 2008.
However, the one-month rate of change for real dollars contracted for the fourth consecutive month. Therefore, the average price of a machine has contracted six of the last seven months. On an annual basis, the rates of change for both units and dollars are still growing, but they are growing at their slowest rate since August 2010.
My forecast for September was 2,600 units, which was too low by 7.6%. Through September my original forecast is too low by 8.8%. My revised forecast for the second half of 2012 is too low by just 0.9%.
There has been a slowdown in manufacturing. But, we now have the election behind us, which has removed some uncertainty. The fiscal cliff should be “resolved” soon. Once that is behind us I think businesses will be able to more confidently look into the future. Based on all of the leading indicators, I’m still optimistic about 2013.
Fed Funds Rate
As has been the case for almost three years, there was virtually no change in the Fed funds rate. We have barely started QE3 and there is already talk of QE4. The half-life of the Fed’s QE programs continues to grow shorter. And, the Fed continues to gobble up an ever increasing amount of all bonds. Based on the latest projections, the Fed will own 60% of the entire U.S. Treasury market in three years. According to J.P. Morgan, the Fed will buy 90% of all new treasuries issued. That means the Fed will be buying virtually all U.S. government debt, supporting every dollar of spending coming out of Congress. Without the Fed buying all of the treasuries, Congress would not be able to spend like it does. I have said it many times, but it bears repeating. If we want to fix the economy and put the 2008 financial collapse behind us, the Fed must stop QE (at the very least).
Real Personal Income Excluding Government Transfers
Income has declined each of the last three months. However, compared to one year ago, incomes are still growing at a modest rate. The annual rate of change has been relatively flat (meaning a constant rate of growth) for the past four or five months. However, it looks like the rate of growth will start slowing again soon. This leading indicator looks to be neutral right now.
Real Consumer Durable Goods Spending
For the first time in three months, a new record was not set in consumer durable goods spending. The one-month rate of growth is still quite strong though. It has been above 5.0% since December 2011, and it has been above 5.0% for all but three months since August 2010. The annual rate of change continues to show accelerating growth. With incomes starting to slow, we should see the annual rate of growth for spending peak in the late first quarter or early second quarter of 2013. This indicator is still positive.
Consumer Durable Goods Industrial Production
While the index is still very close to its high point since the collapse began, the one-month rate of growth has slowed dramatically. It currently is 1.4%, which is the slowest rate of growth since July 2011. The annual rate of change, while still at a strong rate of growth, has slowed the last two months. We may be entering a short period of slowing growth (kind of a stall in expansion) as the rate of growth in production may have raced ahead of spending like it did in late 2010 or early 2011. With spending still growing quite fast, I would expect growth in industrial production to be strong for most of 2013. We may see the growth slow in the first half and pick up in the second of 2013. This indicator is still positive for machine tool sales.
Metalworking Business Index
With a reading of 43.7, the Metalworking Business Index showed that the metalworking industry contracted for the fifth consecutive month. Since March 2012, when the index was 57.0, the MBI has shown a nearly straight line decline. Currently, the index is at its lowest level since July 2009. If there is one thing business owners and managers do not like it is uncertainty. Since the survey was done in late November, it is likely that the election and the fiscal cliff weighed heavily on the results.
Three sub-indices — new orders, production, and backlog — played a major role in the accelerating contraction. New orders fell to 40.9 from 45.0, which is the lowest level since July 2009. Production contracted faster for the third straight month, but it is not contracting as fast as new orders. With new orders continuing to fall faster than production, backlogs are wearing thin. The backlog index fell to 33.7 from 41.0, contracting for the ninth month in a row and reaching its lowest level since July 2009. Two bright notes were employment and supplier deliveries. Employment remained flat in November, which means metalworking facilities are not so grim about the future that they feel the need to reduce employment. Also, supplier deliveries continue to lengthen. This indicates there is still enough work throughout the supply chain to keep companies busy.
While future business expectations fell to 57.0 from 63.3, reaching their lowest level since July 2009, metalworking facilities have not become overly negative about the future. As I already mentioned, employment has remained flat instead of contracting. And, planned spending per plant on capital equipment over the next 12 months has remained flat the last three months. Despite the slowdown, shops appear to be taking a wait and see approach instead of cancelling future investments.