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Tuesday, September 2, 2014

USMTO Explained: Why Track Machinery Orders Instead of Shipments?

From USMTO December 2013 report. Click to enlarge. Source: AMT – Association For Manufacturing Technology

From USMTO December 2013 report. Click to enlarge. Source: AMT – Association For Manufacturing Technology

The monthly U.S. Manufacturing Technology Orders — aka USMTO — report is a compilation of survey data provided by U.S. manufacturing technology builders and distributors, and it provides the most up-to-date picture of the U.S., Mexican, and Canadian manufacturing technology market.

The first USMTO report was issued in March 1996 (as a report of January 1996 data), and at that time was named the U.S. Manufacturing Technology Consumption (USMTC) report. Originally, it was a joint statistical program of AMT – The Association For Manufacturing Technology and AMTDA, the American Machine Tool Distributors’ Association. In 2011, the named changed to USMTO to more clearly reflect that the data in the report covers orders and not shipments.

USMTO provides benefits for its participants, giving them detailed information about their product markets and technologies. But why is it a good measure of the general manufacturing economy?

Investment in capital equipment is one of the best indicators of future manufacturing activity. Think about it: Manufacturers don’t buy equipment to look at it. If a manufacturer is investing in machinery, it’s likely looking to, in some way, improve productivity, be it through enhanced capacity or increased production speed or some combination thereof. Perhaps it is planning to make a new product. No matter how you slice it, this company is looking to become better.

You might be asking: Why track orders and not shipments? That’s because an order for a piece of machinery can be placed anywhere from three weeks to three years before the machine is shipped. Orders represent a much better indication of where manufacturing activity is going. If orders are up now, production activity will be up later. Looking at machinery shipments would mean a lag in data — the report would always be behind the curve.

MORE: December USMTO Shows Machinery Orders Hit 2013 Peak

For analysts and those around the edge of the machine tool industry, orders also make a good indicator of what’s going on in the economy. Capital spending could be compared with the purchasing managers index (PMI), because within it are two parts: not only what’s being bought right now, but, as mentioned before, future activity based on the manufacturing capacity that will be added from those new orders.

Likewise, the PMI indicates where business is headed because it’s a temperature check of factors like supplier speed, employment, production level, and so on. If a business is suffering in those areas, it’s likely to be in for a rough ride in the near future.

In the case of the USMTO, the three-month moving average is a great picture of what the metalworking industry is likely to do and what could be ahead. The moving average smooths out short-term fluctuations in market conditions and highlights longer-term trends and cycles.

The span of 2011-2013 was monumental for the USMTO. Orders during that time were the highest in the program’s history. As of now, 2012 stands as the year with the highest total order value, at $5.7 billion, and some manufacturing industry economists predict that 2014 could top that.

The monthly USMTO release is available on AMT’s website, www.amtonline.org, and the USMTO website, www.usmto.com. Each report includes regional activity, as well as breakdowns between metal forming/fabricating machines and metal cutting machines. The USMTO serves as a way to understand what’s coming in manufacturing and, beyond that, the overall economy.

 

Pat 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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