In January, forecasts predicted the manufacturing technology market would hit bottom in April or May. Expectations were for significant growth in the second half of the year – fueled in part by IMTS – to yield a modest recovery from 2019 levels. Unfortunately, the pandemic devolved those expectations and the same forecasters now project a 35%-50% decline in 2020 orders relative to 2019. At first glance, the situation looks glum, but I suggest that it isn’t that bad, and there are even several bright spots.
Relative to the rest of the world, the U.S. manufacturing technology market is doing better than most. China’s industrial production index is already back to pre-COVID-19 levels and is expected to be up 7% from the end of 2019. Our market will not rebound like the China market, but the impact of the virus on most western countries started three to four months later than in China. At the other end of the spectrum, France’s domestic machine tool orders have fallen to 2 on a scale where machine tool orders in 2015 equal 100. Every nation has seen a decline in its machine tool market, but the situation in France is dire.
In the U.S. manufacturing technology market, some customer industries are doing better than others. The latest capacity utilization numbers for durable goods manufacturing show that the sector is averaging 68.1%. Like all averages, there are industries with higher rates and those with lower. Aerospace industry operations posted their lowest operation levels in years at 59.5%. The auto industry is at the other end of the scale, posting operating rates of 91.9%. Manufacturing technology orders placed by the auto industry in June and July were significantly higher than its investment in this equipment for the same months in 2019. Between these two boundary points are several industries that are doing well and offer opportunities in these challenging times. The industrial machinery sector, comprised of dozens of individual industries, is doing better in 2020 than in 2019. The average year-over-year change in industrial machinery orders is 17% since March. That means that industrial machinery sector orders are nearly 20% larger through July in 2020 than the first seven months of 2019, with the woodworking machinery, food processing, and semiconductor manufacturing equipment industries fostering the growth.
The materials handling equipment sector is also doing well. The average year-over-year growth from March through July was -8%. The modest decline is the result of dismal order activity by several industries in the sector, but the industrial truck & stacker and conveyor industries have avoided significant order declines. Instead, they are expanding capital spending and rebuilding weak inventory levels, leaving them to ramp up production earlier than many other industries.
Contract machining receipts fell by 25% on a monthly basis between March and May but has made up 20%-30% of that in the past three months. The industry is seeing increased demand, and capacity utilization is up significantly. The defense industry has maintained its pace of production and investment during this crisis. Sales in the firearms industry surpassed 2019 units by the end of August. Firearms manufacturers and auto components providers are vying with medical equipment producers for time in contract machining shops as restrictions on voluntary surgeries for joint replacements lifted the lid on postponed surgeries. While these are not the best of times, it is heartening to understand that it could be worse, and even in tough times, there are always opportunities to be found. If we can help, don’t hesitate to reach out to us at pmcgibbon@AMTonline.org or cmdowns@AMTonline.org.
