Economic Growth Slows; Expectations Positive 41.7 Total Mold Business Index for February 2008

Overall economic growth in the U.S. is sputtering so far this year, and this is constraining demand for new molds in the first quarter of 2008

Overall economic growth in the U.S. is sputtering so far this year, and this is constraining demand for new molds in the first quarter of 2008. Our Mold Business Index (MBI) for February is 41.7. This is still well below the break-even point of 50.0, but it is a 2.9-percentage point increase from the January value of 38.8. Decreases were registered in all of the core MBI components. Despite the second consecutive month below the 50-mark, Future Expectations stayed positive at 57.5 in February.

The recent spate of manufacturing sluggishness notwithstanding, we believe the current slowdown in the U.S. economy will be short and shallow by historical standards. This means that total demand for new molds and tooling will remain close to the current level in the first half of this year before growing more steadily in the second half of 2008. The Fed has slashed interest rates in recent weeks, and will likely do so again in the near future. Congress also has chipped in with an economic stimulus package. These efforts should be sufficient to revive economic growth in the second half of this year.

Downside risks to this forecast are stubbornly high energy prices 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.

During a typical down cycle, the supply conditions would become more favorable for moldmakers. The slowing demand would result in lower materials prices and quicker delivery times from suppliers of materials and components. Such is not the case this time. The prices paid for materials increased again as the latest sub-index for Materials Prices was 70.0. Supplier Delivery Times lengthened again, as this sub-index posted a value of 40.0.

The sub-index for New Orders of molds registered 40.0 in February. Production levels also descended, as the latest Production sub-index was 37.5. The Employment component was 45.0, which means that there was a small drop in overall payrolls last month. The Backlog component was 37.5 in February. The Mold Prices sub-index for the latest month was 40.0. This means that the prices received for new molds were a bit lower.

February 2008
  % % % Net % Sub
  Positive Equal Negative Difference Index
New Orders 25 30 45 -20 40.0
Production 20 35 45 -25 37.5
Employment 20 50 30 -10 45.0
Backlog 20 35 45 -25 37.5
Export Orders 0 100 0 0 50.0
Supplier Deliveries 5 70 25 -20 40.0
Materials Prices 40 60 0 40 70.0
Mold Prices 0 80 20 -20 40.0
Future Expectations 35 45 20 15 57.5

 

Related Content

Registered Growth Expected Later in Year 47.5 Total Mold Business Index for July 2008

The total Mold Business Index is a weighted average of the sub-indices for new orders, production, employees, backlog, exports and supplier deliveries.