June Machine Tool Sales

According to USMTO, there were 2,045 machine tool units sold in June 2012. This was 2.8% more units sold than in June 2011. Real dollar sales in June 2012 were just 0.6% higher than they were in 2011. This is the fifth consecutive month that machine tool sales were more than 2,000 units. The last time there was a streak longer than five months of more than 2,000 units sold per month was in the second half of 1998. That streak lasted from August 1996 to November 1998. During that incredibly strong run of machine tool sales from 1996 to 1998, the inflation-adjusted average price of a machine was $162,280. If we compare that average price to the one from the current run of strong sales (which I lengthened to the last 11 months, since 10 of those months have had sales of more than 2,000 units), then we find that the inflation-adjusted average price of a machine is $198,900, or 22.6% higher. Arguably, this is the strongest machine tool market in nearly a generation.

In June my forecast was too low by 4.7%. For the first half of 2012, my forecast was too low 6.6%. Next month I will update my forecast for the remainder of 2012 (it will likely be an upward revision) and reveal my forecast for 2013 (at this point I’m seeing reasonably good growth in machine tool sales in 2013). Also, we are currently working on tabulating the results from our 2013 Capital Spending Survey. One tidbit I can share with you is that operating capacity will likely be around 79.5%. This would be the highest operating capacity from our survey since 2006. And, this is significantly higher than last year’s 77%. History shows that operating capacity and machine tool sales are strongly correlated.

Fed Funds Rate

There is nothing new to report in terms of interest rates. Markets continue to expect the Fed to provide quantitative easing but economic data continues to be just strong enough that Fed has no reason to pump more money into the economy. However, the St. Louis adjusted monetary base (essentially equivalent to the cash in your pocket) has contracted month over month for two straight months. The Fed doesn’t let that happen very often.

Real Personal Income ex. Government Transfers

Incomes have grown faster month over month each of the last five months. The current one-month rate of change is 2.29%, which is the fastest rate of growth since June 2011. While the annual rate of change continues to see decelerating growth, the deceleration should come to an end soon. If income levels merely remain flat for the next few months, then the annual rate of change will start accelerating next month. Longer term, this is a positive for machine tool sales.

Real Consumer Durable Goods Spending

Spending levels remain near all-time highs. The one-month rate of change is very strong at 8.2%, which is the fastest rate of growth since February 2011. In turn, the annual rate of change has grown faster the last two months. With incomes starting to grow faster, I look for the annual rate of growth for consumer durable goods spending to continue to accelerate. This is a positive for machine tool sales.

Consumer Durable Goods Industrial Production

The consumer durable goods industrial production index was 84.8 in July 2012. This is the lowest level for the index since December 2011, but July is a seasonally low month for manufacturing output. Compared to July 2011, industrial production grew 8.7%. This is a strong rate of growth but is the lowest month-over-month growth rate since December 2011. Despite the slower rate of growth in July, the annual rate of change continued its rapid acceleration. The annual rate of growth is now 8.7%, which is the fastest rate of annual growth since March 2011. Also, this marks the ninth consecutive month of growth for consumer durable goods industrial production. With both incomes and spending looking to grow faster, industrial production should continue to see stronger growth. This is very positive for machine tool sales for the remainder of 2012 and 2013.

See industry trends data here.
See monitatry and credit data here.

Metalworking Business Index

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.

See detailed MBI results here.

Steve Kline
Director of Market Intelligence
Gardner Business Media, Inc.