How long can you be cautiously optimistic?
The short answer is “who knows?” Politicians, economists, and the media have continuously predicted the imminent demise of the manufacturing-led recovery. The current recovery turns 3 years old this month and yet very few people even today seem to be ecstatic about the pace or the current outlook. Every quarter there have been warnings that the challenges facing a manufacturing-led recovery would sink the recovery. Stories that a double-dip recession was in the works filtered through the media throughout 2010. Economic experts declared the end of a recovery after the Japanese disasters of March 2011, again during the oil price spikes in late spring 2011 and once more at the beginning of the EU financial crisis in summer 2011. They too were wrong.
This manufacturing recovery continues to trudge along. The industrial production index for durable goods has grown one percentage point a month, on average, since June 2009. Forecasts for industrial production continue to have it at that pace or slightly slower through 2013. At the peak of the last recovery (October ’05 – January ’08), capacity utilization bounced around 78 percent, which is basically where we are today. The Purchasing Managers’ Index climbed above the magic “50” line in August 2009 and accelerated to 60 by March 2010. It remained there for a year and lazily floated to its current level of 53 where it has been for the past 11 months. What matters is that any number above 50 indicates expansion and we continue to expand much like the tortoise in Aesop’s fable. We all know how that story ended.
Two indicators of future trends in manufacturing output or industrial production that are useful are orders for raw materials (represented on this page by the graph for New Orders of Primary Metals) and manufacturers’ profitability. The demand for primary metals is one and one half times what it was in March 2009. Although the past 3 months show a leveling off, it is likely to continue to edge up once again and remains at a healthy level comparable to peaks in previous recoveries. The system is still being fueled with materials. Second, manufacturers are recording the highest profit levels in nominal terms of all time. The previous two peak quarters yielded $115 billion and $134 billion in profits for durable goods manufactures. The fourth quarter of 2011 netted a whopping $138 billion and expectations are that the first quarter of 2012 will top that when all the tabulations are done and the figures reported.
As old Aesop established in his fable, slow and steady wins the race, and this manufacturing recovery has been nothing if not slow and steady. We can be cautiously optimistic forever as long as manufacturing continues to expand and the indicators point to enjoying that cautious optimism for a few more quarters, at least. Enjoy the fact that this industry’s customers are flush with a need for productive equipment and are flush with cash. Keep a cautious eye on the orders for primary metals as this will be one of the first indicators to move down followed closely by the PMI. If you have any questions, don’t hesitate to contact Pat McGibbon at 703-827-5255 or pmcgibbon@AMTonline.org.
Producer Price and Wage Report
The Producer Price Index for Finished Goods increased 0.3 percent in April to 195.0 (1982 = 100). Compared with the level a year earlier, finished goods prices increased by 1.9 percent. Prices for crude manufacturing materials decreased 2.0 percent from March and 4.4 percent from a year ago.
The metal cutting machine tool index increased 0.2 percent and the metal forming machine tool index decreased 0.6 percent. Compared with last April, metal cutting prices rose 4.2 percent and forming prices rose 2.3 percent. For more information or for a copy of the complete
Producer Price & Wage Report, contact Russell Waddell, Industry Economist, at 703-827-5258 or rwaddell@AMTonline.org.
Foreign Trade Report – March 2012
U.S. machine tool exports valued $221.1 million in March, up 8.3 percent from February’s total of $204.2 million. Exports for year-to-date 2012 totaled $599.4 million, a decrease of 3.9 percent when compared with the same period of 2011. Monthly machine tool imports valued $545.9 million in March, up 29.4 percent from February’s total of $421.8 million. Imports for year-to-date 2012 totaled $1,451.6 million, an increase of 73.1 percent when compared with the same period for 2011.
China was the leading destination for U.S. machine tool exports in March with $40.6 million, a 19.0 percent increase from February. The second largest destination for U.S. machine tool exports was Mexico, with $38.0 million, a 1.4 percent decrease from February. Completing the top five destinations for U.S. machine tool exports were Canada ($22.8 million), Germany ($12.0 million), and Brazil ($11.1 million).
Japan ($210.0 million) and Germany ($83.8 million) were the top suppliers of U.S. machine tool imports for March 2012. Compared with February’s figures, Japanese imports increased by 22.6 percent and German imports increased by 26.0 percent. Completing the top five sources of U.S. machine tool imports in March were South Korea ($52.3 million), Taiwan ($38.5 million), and Italy ($38.3 million).
, you can interactively evaluate the imports and exports of machines tools by the United States. Discover all of the countries with whom the United States is trading, scrutinize that trade at the most detailed commodity classification level, and interpret the progression of U.S. machine tool trade over time. For more information about any aspect of this report or to make a specific data request, contact Kim Brown, Industry Engagement Manager, at kbrown@AMTonline.org or 703-827-5223.