2012 Machine Tool Orders Up 3.8%

According to USMTO, machine tool sales in December were 2,269 units and $419,630,000. Unit sales in Deecember 2012 were 6.9% less than they were in Decemer 2011. This was the worst month-over-month rate of change since December 2009. However, December 2011 orders were likely somewhat artificially inflated because of concern about expiring bonus depreciation laws. Despite the significant decline month over month, unit sales were up 3.8% in 2012 compared to 2011, not all that bad after increases of 63.0% in 2010 and 45.2% in 2011. My forecast for December was just 3.0% too low. My forecast for the second half of 2012 was too low by 5.2%. And, my original forecast for 2012 (created on 9/23/11) was too low by 13.6%. 

Real dollar sales have not performed as well as unit sales though. In five of the last six months, real dollar sales have declined compared to the same month one year ago. In the last two months, real dollar sales have contracted by more than 10%. This means that real dollar sales were essentially flat in 2012 (actually down 0.3% compared to 2011). Because unit sales have maintained modest growth while real dollar sales have contracted recently, the average price of a machine is contracting faster each month on an annual basis.

While machine tool sales cooled off in 2012, I think they will remain relatively flat in 2013. Why? First, while durable goods production has been slowing down, it is still growing at an extremely fast rate historically. Typically durable goods production leads machine tool sales by 12-18 months. In the chart below, I think the relatively constant rate of growth seen in durable goods production will lead to modest growth in machine tool unit sales.

While durable goods production has seen slower growth, activity in the metalcutting industry has improved the last two months according to our Gardner Business Index. Business activity in the metalcutting industry tends to lead machine tool sales by about eight months. Based on our data, the annual rate of change in activity should bottom out any month now. This would be a positive sign for machine tool sales.

Also, our business index shows that metalcutting facilities are increasing their capital spending plans. In January, the average plant said they would spend $959,471 on capital equipment in the next 12 months, which was the highest level since June 2011. Changes in average spending per plant lead machine tool sales by six to eight months. As you can see in the chart below, average spending per plant is pointing towards stronger machine tool sales in 2013.

Yo can find more data on leading indicators and machine tool sales here.