Machinery & Components shipments slow temporarily
Jim Haughey, Director of economics for Reed Business Information -- Industrial Distribution, 5/13/2005
Machinery and components manufacturers increased their shipments 13.5% over the last seven quarters but sales slipped 3.0% in February and March. This is not the end of the investment boom but only a short inventory cycle contained within the longer 2003-07 capital goods expansion. There were similar, short inventory cycles with several months of declining sales in both 2003 and 2004. The sales drop early in 2005 was caused by consumer and business spending caution when energy prices soared. The motor vehicle industry took the biggest negative impact, experiencing a sharp sales decline and slowing thei own investment. At the same time, other capital goods industries experienced a sales drop following the December expiration of temporarily quicker depreciation for capital goods purchases up to $100,000.
The negative impact of energy prices on capital purchases has now reversed in business markets with energy prices falling for a month. This is confirmed by the 274,000 new jobs added in April. The impact will reverse by the end of the spring in consumer markets, providing a brief spur to motor vehicle sales. Preliminary April consumer spending reports show no further decline but relatively little improvement so far.
Overall, machinery and components shipments are expected to be increasing again by the end of spring and rising at about a 6% annual pace through next year. This will be the mature stage of the capital spending boom. Manufacturing capacity use rates will be high and rising, although month-to-month sales growth will be slower than in late 2003 and throughout 2004. This is the period in every business cycle when manufacturers are most active in adding capacity and introducing new products. This means heightened activity moving and reworking machinery and the related building systems. After six years of decline, construction spending for manufacturing facilities increased 31% in the last six months. A further gain at least as large is expected over the next year.
Machinery Manufacturing Shipments Outlook
|
Annual percent Change in
Shipments | |||
|
|
2004 |
2005 |
2006 |
|
Fabricated metal |
4.9 |
6.5 |
4.8 |
|
Machinery |
15.7 |
7.9 |
8.0 |
|
Electrical |
4.5 |
7.0 |
5.1 |
|
Plastic &
Rubber |
8.2 |
8.1 |
6.2 |
|
Aerospace |
8.0 |
4.9 |
10.6 |
|
Motor Vehicle |
3.8 |
0.0 |
4.7 |
|
Source: US Department of
Commerce | |||
|
Forecast: Reed Research
Group | |||
Heavy trucks and off-road equipment were the fastest growing markets last year. Both will expand more slowly in 2005-06. Auto and light truck sales have been stagnant for nearly a year; the only capacity expansion investment has been in the South not in the older Great Lakes factories. Rising employment will eventually raise motor vehicle sales later this year. Plastics parts shipments have growth steadily slightly faster than overall economic growth with this trend forecast to continue through 2006. But note that the pace of economic growth is subsiding from over 5% to 3.0-3.5% from late 2003 to later 2006. The plastics industry has a serious long-term problem that is being masked during the current period of strong economic growth. The price of natural gas, the main industry raw material, has more than doubled since the later 1990’s, pushing additions to plastic resin production to Asia and the Middle East. The resulting higher resin cost in the US makes plastics parts less price competitive with other materials and may result in much more imports of plastics parts a few years ahead.
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