May Machine Tool Sales Over 2000 Units Again

According to the USMTO, May machine tool sales were 2,075 units. This is nine out of the last 10 months that machine tool sales have been more than 2,000 units. My forecast for May was 1,750 units. This was too low by 15.7%, and my forecast through May is too low by 7.6%. The one-month rate of change grew modestly while the annual rate of change continued to show slower growth. If machine tool sales average just above 2,100 units per month for the rest of the year (which is a little more than what they have averaged through May) then the annual rate of change at year end will be 0.5%. My original forecast for the year was a slight decline of 3%. I always find it interesting to track this data myself and compare it to what is reported in the media. There is a lot of talk of another recession and the economy slowing down. I think that talk is valid, especially with the major troubles in Europe and the Chinese economy clearly slowing down. However, the data still looks pretty positive for durable goods manufacturing and machine tool sales.

Fed Funds Rate

The rate is at its highest level since February (16 basis points) but that isn’t saying much. The market really wants more QE from the Fed, but the Fed doesn’t like acting this close to a presidential election so as not to appear to be playing favorites. However, the one-month rate of change in the monetary base is contracting again, which in the past has led to action from the Fed. How long will the Fed let that go on before it acts?

Real Personal Income Excluding Government Transfers

While incomes were flat for most of 2011, they have been rising in 2012. The one-month rate of change has grown faster each of the last five months and is at its fastest rate of growth since June 2011. With the one-month rate of change rising, the annual rate of change should bottom very soon and start growing again. This is a positive sign for machine tool sales.

Real Consumer Durable Goods Spending

The one-month rate of change continues to grow at a good clip, and it is at its highest rate of growth since February 2011. The annual rate of change has been growing faster for three months. However, spending has leveled off in 2012. This should keep the rates of change from going much higher. But, with incomes growing faster, spending should follow. Spending on durable goods continues to be a positive for machine tool sales.

Consumer Durable Goods Industrial Production

After seeing slower growth in 2011, industrial production of consumer durable goods has taken off once again in 2012. In June, the index was at its highest level since November 2007. It is still about 9% away from the all-time peak in June 2007 but only about 3-5% away from the peak levels sustained in that year. For five out of the last six months the one-month rate of change has been higher than 11.3%. So, while the index is at a reasonably high level, the rate of growth is still quite strong. The annual rate of change has grown eight months in a row and is at its highest rate since April 2011. This is a stronger rate of growth since any time in the mid-90s (excluding the exceedingly strong growth we saw in late 2010 and early 2011). This is a very positive sign for machine tool sales.

Industrial production leads machine tool sales by 12-18 months. The annual growth rate in industrial production bottomed in October 2011. If historical trends are a guide, the growth in machine tool sales will continue to slow, perhaps even contract, until sometime between October 2012 and March 2013 and then bottom out and start moving up again.

Chart - Fed Funds Rate vs. Durable Goods Spending

Metalworking Business Index: July MBI at 48.3 – Industry Performance Moderating

With a reading of 48.3, the Metalworking Business Index showed that the metalworking industry has contracted for the first time in three years. The contraction could be due to seasonal effects since these results are from July, which is when many manufacturing facilities slow down or shut down for maintenance. Also, after three years of growth, one month of contraction compared to the previous month means that the metalworking industry is still operating at very high levels. However, since March 2012 there has been a steady decline in the growth of the metalworking industry.

Both the new orders and production sub-indices fell significantly in July, moving from growing to contracting. However, during this three-year expansionary period, both of these sub-indices have been at lower levels. Employment continues to expand although it is growing at a slower rate. Backlogs are contracting at the fastest rate since this expansion began. And, with new orders contracting faster than production, the industry could see backlogs contract further. Exports continue to contract as the dollar strengthens against other currencies. The one bright spot is that supplier deliveries continue to lengthen. This indicates that manufacturing in general is still operating at a fairly lean level, especially with backlogs contracting so sharply.

The future business expectations sub-index has fallen below its historical average, which means that owners/managers are less optimistic than usual. Certainly, the significant drop in backlogs has contributed to this. Also, the Supreme Court’s decision on healthcare was announced shortly before this survey. A similar reduction in optimism occurred last year during the government’s debt ceiling debate. Business owners and managers are more optimistic when conditions appear more stable.

Need more information?
Contact your GBM representative or Steve Kline, Jr.
Director of Market Intelligence
Gardner Business Media, Inc.
800-527-8837 • 513-527-8837
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