There is a growing consensus amongst economic analysts that the U.S. economy slipped into a recession during the first quarter of 2008. This slowdown in economic activity resulted in a substantial decline in domestic demand for many types of manufactured goods, especially new molds and tooling. Our Mold Business Index (MBI) for March is 36.6. This is a 5.1-percentage point decrease from the weak February value of 41.7. Decreases were noted in all of the core MBI components except Employment. This marked the third consecutive month that the MBI was below the 50-level; however, Future Expectations stayed
The Fed has slashed interest rates again recently, and consumers will soon receive the government checks that are part of the recent economic stimulus package passed by Congress. These efforts should help to revive economic growth in the second half of this year. So we continue to believe that the current slowdown in the U.S. economy will be short and shallow by historical standards. Thus, the market for new molds and tooling will be sluggish in the first half of this year, but demand will gradually increase in the second half of 2008.
Downside risks to this forecast are: stubbornly high energy prices; rising prices for virtually all types of commodities and materials; and the persistence of the systemic credit crunch that started with the sub-prime mortgage debacle. The residential construction and real estate markets will still have to endure about another year of pain, but the data suggest that these sectors are now past their cyclical low-points. The American moldmakers will continue to benefit from the low value of the U.S. dollar throughout 2008, while Canadian moldmakers will remain pressured by the exchange rate situation.
The sub-index for New Orders of molds registered an anemic 30.6 in March. Production levels descended sharply, as the latest Production sub-index was only 25.0. The Backlog component was also only 25.0 in March. The Mold Prices sub-index for the latest month was 33.3. So prices received for new molds were lower, but the prices paid for materials increased again as the latest sub-index for Materials Prices was 72.2.
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