Pat McGibbon, AMT VP – Strategic Analytics, explains why the 20 percent increase in December U.S. Manufacturing Technology Orders is just average.
Even though the latest U.S. Manufacturing Technology Report shows December orders were up 20 percent over November, it’s actually just below the average usually seen for December. December orders are typically 22-24 percent higher than November, reflecting end-of-year fiscal conditions, concern over interest rates, sales to reduce inventory, and companies looking to gain tax advantages from investing in new machinery.
The better gauge of the current market is comparing 2015 order totals to those of 2014. In that case, orders were down 17 percent, a downturn that AMT has been forecasting since late 2013.
Interestingly, this hasn’t been an even decline. Some geographical regions and industry sectors are doing better than others. This spottiness will continue into 2016. Overall, the energy and off-road and highway construction industries have fallen dramatically. But the automobile industry has made dramatic gains and aerospace looks strong everywhere. The consumer electronics industry has come out of nowhere -- buying millions of dollars in new manufacturing equipment at nearly double the rate it has in the past.
In the North Central East region, which covers the Great Lakes area, the automobile, aerospace and consumer electronics industries are up, but the industries that are the heart of that region — off-road and highway construction — are having a very difficult time. Rock-bottom commodity prices have had a serious impact on demand, and it has cost the region more than 2,000 jobs in just the last few months.
At the same time, low oil and natural gas prices has contributed to such high demand for trucks and SUVs that there is now a shortage. As a result, the auto industry, primarily Ford, has invested more than $2 billion into the Great Lakes area, which will create about 4,000 jobs in the auto components and manufacturing sectors. This helps balance the losses in construction and resulted in the region’s best quarter out of the past five quarters.
Due to the struggles in the oil industry, orders have fallen dramatically in the South Central region, which covers Texas, Louisiana, Arkansas, New Mexico, and Arizona. A pickup in consumer electronics is boosting the region, as are some non-traditional sectors, such as commercial construction equipment and truck bodies. Meanwhile, New England’s orders actually grew from 2014 to 2015, primarily due to aerospace engine orders and consumer electronics.
While consumer electronics and aerospace is spread across the U.S., four out of six regions saw an increase in consumer electronics orders, and five out of six regions had increases in aerospace orders. New England benefitted the most from the uptick in consumer electronics orders, which helped the region grow compared to 2014.
In the Southeast, the aerospace and auto industries remain strong as Boeing and Volvo have put in a lot of investment into many smaller companies that will be a part of their supply chain to produce new planes and cars. Out West, there was no real change month-to-month, though there were plenty of swings up and down throughout the year. An auto parts company is building a new plant in the Las Vegas area, creating 4,500 new jobs and investments of almost $2 billion - a sizeable order for that region indeed.
Overall, spottiness in the market means there have been areas of great strength and areas of significant weakness. But there are opportunities; it's just going to take patience and diligence to identify them. If you have a question about what’s going on in a particular technology niche or geographic area, AMT can help.
In closing, Greg Daco, head of U.S. Macroeconomics at Oxford Economics, has forecast that there will be three quarters of decline in 2016, followed by a fourth quarter that will bring the yearend order totals up 3 percent over 2015. That's sounds like some welcome news for our industry.
Read the full December 2015 USMTO Report.
Pat recently returned from the IMTS 2016 Exhibitor Workshop in Chicago and commented: ”Enthusiasm for our industry is still very high! Even with the snow, rain, and blizzard nothing could stop people from getting there. More than 600 marketing and sales executives from the manufacturing technology industry were there to learn, network, and prep for our big industry event IMTS 2016.”
The International Manufacturing Technology Show (IMTS) will be held Sept. 12-17, in Chicago.