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Machine Tool Orders Offer Clues Into Economic Trends

We’ll focus on orders from machine shops, examining how they differ from demand across all industries and their correlations with economic data.
May 30, 2022

In 2021, a total of $5.9 billion worth of manufacturing technology was ordered, according to the U.S. Manufacturing Technology Orders Report published by AMT. Of that total, nearly $2 billion of orders were placed by machine shops. Roughly one-third of the total dollars spent on metal-cutting machines are ordered by machine shops. When counting units ordered, machine shops make up nearly 40% of the orders in a given month. Interestingly, the share of units ordered by machine shops has consistently exceeded the dollar-value share in the past several years. Because of this, the average value of metal-cutting machines ordered by machine shops is, on average, 16% lower than the average value of metal-cutting machines across all industries.

In last month’s column, we examined the correlations between the average value of cutting machines ordered and the unemployment rate at various stages of the business cycle. This month, we’ll focus on orders from machine shops, examining how they differ from demand across all industries and their correlations with economic data.

Not a Popularity Contest – But VMCs Win

In comparing the units ordered by machine shops to the general market’s orders, some interesting trends emerge. Across all industries, the most commonly ordered machine is the vertical machining center (VMC). Machine shops account for 45% of total VMC orders, making VMCs their most commonly placed order. Additionally, machine shops place over half of all milling machine orders, but they represent a far smaller share of total purchases. While the share of VMCs and milling machines ordered by machine shops exceed their share of total orders, horizontal lathes fall below the general share despite being the second-most commonly ordered machine.

The widest difference between the orders placed by machine shops and orders placed by the general market is in the saw category. As a share of total orders, machine shops order about a quarter as many saws as the total market. Similarly, machine shops order about a third of the grinding machines and just over half as many EDMs as the general market.

The differences between the products ordered by job shops versus the general market could account for the disparity in average value. In addition to the product mix, the higher variability of parts made at machine shops could also negate the need for some of the automation the general market demands, which tends to increase the average value of machines.

Can Drilling Into the Data Cut Through the Noise?

Returning to the examination of the correlation between average order value and the unemployment rate: In the period between January 2019 and February 2022, the average value of machine shop orders was less correlated than the average value of all orders. Interestingly, the average value of all orders less those from machine shops had a slightly higher correlation coefficient than machine shops but still less than the average value including all industries.

Other than with the unemployment rate, the average value generally did not have the highest correlation coefficient. The strongest correlations tended to be between the net value of cutting-machine orders and their respective economic data series. The dollar value of orders from machine shops had the strongest positive correlation with manufacturing job openings and expenditure on consumer durable goods. Manufacturing capacity utilization was an interesting case, where the strongest correlation was between it and the net orders less machine shops. This could possibly be explained as machine shops generally serving as a relief valve when additional capacity is needed. However, as capacity utilization increases further, OEMs are more likely to increase their own capital investment rather than contract out work in an environment where both lead times and prices are increasing.

Might Further Investigation Lead to Industry Predictions?

The correlations between the USMTO orders and economic data are quite compelling, and more research should be done to determine the direction of causality as well as possible interactions between variables. The relationship between past machine orders and broader economic trends can be utilized to anticipate future machine sales, the need to invest in additional capacity, or the general direction of the manufacturing economy.

The machine order data used in this article is from USMTO, which is released the second Monday of each month. If you are a builder or distributor of manufacturing technology, you can receive more granular data by becoming a participant. If you have any questions or would like to participate, please visit USMTO.com or contact AMT.

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Author
Christopher Chidzik
Principal Economist
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