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Tuesday, July 22, 2014

AMT Viewpoint: Forecast Is Mixed, but Manufacturing Still Looks Optimistic

AMTAt last month’s Global Forecasting & Marketing Conference in Cincinnati, Alan Beaulieu of ITR Economics advised manufacturing technology providers to dig in their heels in preparation for a tough 2014, but Eli Lustgarten from Longbow Research said to expect a potentially banner year for manufacturing technology. While outlooks on next year are divided, AMT – The Association For Manufacturing Technology is cautiously optimistic that 2013 will end on a solid note, even if machinery orders look to be off about 10 percent from 2012 levels.

Based on data that AMT tracks, many major end-user markets are doing quite well. Light-vehicle sales are projected to be well over 2012 levels and above the 15 million unit mark for 2013, a clear sign of continued recovery in consumer spending. September’s durable goods orders were up from August in large part from a boost in aerospace and vehicle orders, although durable goods orders minus transportation fell off very slightly from August.

Order backlogs are at historically high levels, indicating that production is not keeping up with pent-up demand. AMT’s USMTO report shows manufacturing technology orders got out of the summer doldrums and, although not approaching the levels in September and October last year, are pacing toward a strong, if softer than expected, 2013 finish.

But even while demand for machinery is high, uncertainty in the U.S. business climate is still holding back growth. The long-term economic effects of the government shutdown in October are still unknown, but the short-term consequences are already visible. Consumer confidence plummeted, by more than 10 points in the Thomson Reuters/University of Michigan consumer sentiment index in October and now sits at 72.

Credit: cooldesign at FreeDigitalPhotos.net

Credit: cooldesign at FreeDigitalPhotos.net

One surprise move by economic policymakers in particular was telling: The Federal Reserve stated it will continue purchasing bonds in the face of still-high unemployment and weak growth, likely well into the first quarter of 2014. This helps keep long-term borrowing rates at historic lows, a positive for manufacturers wanting to make capital investments. However, low long-term borrowing rates also suggest a sluggish investing environment.

Other economic indicators are more promising. The Purchasing Managers Index from the Institute for Supply Management, at 56.4, is at its highest level since early 2011 and continues to signal healthy growth for a broad spectrum of manufacturers. Just a few months ago, the PMI was hovering just above 50, which while still signaling expansion had many analysts concerned about an impending contraction.

Housing starts are off from projections earlier this year but still anticipated to be well above 2012 levels. The capacity utilization rate has been bouncing between 76 and 77 percent, which is below pre-2008 levels but indicates that manufacturers are operating at a comfortable pace with some room for investment.

With the next U.S. federal budget deadline looming on Dec. 13, here’s hoping that policymakers will put partisan politics behind them and focus on jump-starting economic growth. Our best chance at real progress is a reliable business climate that isn’t subject to the fiscal crises generated in Washington. This is certainly one of the top things on my holiday wishlist.

 

Pat McGibbon AMTPat McGibbon is vice president of industry intelligence and engagement for AMT – The Association For Manufacturing Technology. Based in McLean, Va., AMT represents and promotes U.S.-based manufacturing technology and its members — those who design, build, sell, and service the continuously evolving technology that lies at the heart of manufacturing. For more, visit AMT’s website at www.amtonline.org.

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