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Machine Tool Market Heats Up

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At the recent IMTS Summer Economic Update webinar, AMT VP-Strategic Analytics Pat McGibbon discussed the forecast for the manufacturing industry through 2018. (AMT – The Association For Manufacturing Technology owns and operates IMTS – The International Manufacturing Technology Show.)

Pat began the webinar with a photo of a child on vacation asking his parents, “Do we have to leave?” In terms of the economy Pat expects things to stay good for a while. Economic indicators show expansion; he projects the manufacturing technology market in the U.S. will grow at a rate of 12.5 percent in 2017 and 4.5 percent in 2018. He expects larger profits in the last two quarters of this year.

We are in a growing economy, but with occasional setbacks depending on the specific industry sector. This expansion in the manufacturing technology market is not as smooth as the recovery of 2010 thru 2014. Manufacturing technology orders are steadily increasing, but not across all industries at once. He made the following points and observations:

U.S. Production and Consumption
Imports’ share of consumption has decreased significantly. Thirty years ago this ratio was as high as 70 percent. For the past 10 years it has hovered around 60-62 percent. For the past three years, this ratio has taken a dive to about 50 percent indicating that the United States is increasingly providing more machines domestically while import prices have been softer.  

Purchasing Managers’ Index (PMI)
PMI continues to indicate expansion. The August Purchasing Managers’ Index (PMI) registered 58.8, an increase of 2.5 percentage points from the July reading of 56.3 percent. It was the ninth month in a row that the index exceeded the expansion level basis of 50.

AMT’s Current Conditions Report
All indices remain the same or are growing except the Baltic Dry Index, which is doing better.

Increase in Orders for Durable Goods
Orders for durable goods moved up by $245 billion last month, the highest since 2014, and likely a result of orders from the Paris Aerospace Show.

Housing starts
Housing starts are increasing—good news for the industry.

Consumer sentiment
Consumer sentiment is positive and has been holding around 95 since December 2016.

Manufacturing Business Index (MBI)
The MBI, like the PMI, calculated by Steve Kline at Gardner Business Media, is more than 50 and expected to remain above 50 for the next 60 and 90 days out. The MBI is a closer indicator for the manufacturing industry.

Automotive
Industrial production is doing well at 134.4 and the capacity utilization rate has increased to 82 percent. Projects in power train are starting to hit the order books. Automotive doubled orders in June from May. Foreign direct investment in the auto industry is more than $10.8 billion. Automotive accounts for 20 percent of estimated machine tool orders.

Changes on the horizon include zero emissions vehicles compliance in 10 states and an increase in the production of electric vehicles.

Aerospace
Industrial production is doing well at 102.7 and the capacity utilization rate is up at 76.9 percent. Foreign direct investment in the aerospace industry is $1.3 billion. Aerospace accounts for 15 percent of estimated machine tool orders. Profits remain at record level. The Paris Air Show generated the most deals since 2013. An increase in composite materials and a raise in the cost of the materials are expected.

Medical
Industrial production is up from last year though the index is at 93.9. This sector is still the fastest growing market for manufacturing technology. Capacity utilization rate is 76.3 percent. Foreign direct investment in the medical industry is $643 million. Medical accounts for 7 percent of estimated machine tool orders.

The U.S. medical implants market is expected to be worth $73.9 billion by 2018. Orthopedic implants take the lead in medical implants. Advances in mixed materials, 3D modeling and personalization of medical devices are expected and may be more challenging in design.

Off-Road/Agriculture/Construction
After a slump in 2015 and 2016, industrial production is starting to pick up at 63.5 and capacity utilization rate is up at 53.1 percent. Foreign direct investment is $1.3 billion. Off-road/agriculture/construction accounts for 6 percent of estimated machine tool orders.

Construction spending for the first half of 2017 is up 4.8 percent over the same period 2016. Construction costs are expected to rise due to increases in the price of materials and cost of labor. U.S. tractor and combine sales are up 7- 8 percent from 2016. There is a need for connected agriculture machinery among farmers. The construction market expects to grow as the U.S. government needs to improve infrastructure across the country.

Energy and Power
Industrial production is starting to pick up at 80.5 percent and capacity utilization rate is up at 70.7 percent. Foreign direct investment is $13.3 billion. Energy and power accounts for three percent of estimated machine tool orders.

Wind capacity is up 41 percent year over year from 2016. Power grids needing infusion as more electric cars come to market are expected to expand in the next two years.

Job Shop
Industrial production is 96.2 percent and capacity utilization rate is up at 79.7 percent. Foreign direct investment is $3.3 billion. Job shops account for 30 percent of estimated machine tool orders.

Fabricated metal production is expected to increase through 2018. Production activity is on a steep growth curve. There is caution in investing, though manufacturing favors job shops.

Want More Insight into Economic Conditions?
Attend the 2017 Global Forecasting & Marketing Conference, October 11-13, in Atlanta, Ga. GFMC is specifically tailored for the advanced manufacturing industry.


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