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U.S. Manufacturing Output Accelerated in August


By: Bill Wood 19. September 2013

According to data released this week by the Federal Reserve Board, total U.S. industrial production (output of the manufacturing, mining, and utilities sectors) expanded a moderate 0.4% in August, but the manufacturing sector was the strongest growing by a heartening 0.7% when compared with the previous month. Output of durable goods advanced 1.2% with the biggest gain coming from a 5.2% surge in the production of motor vehicles. Production levels for the high-tech sector escalated 1.7%.

After a strong start to the year, the overall trend in the data for the manufacturing sector this past spring and summer has been discouraging. But the situation appeared to improve in the month of August. Business surveys such as the ISM Manufacturing Index are now indicating a firmer tone for the manufacturing sector. Capital spending plans are increasing, and the export data is improving.

The growth in the data measuring total U.S. output of plastics products in 2013 has been stronger than many other sectors, but the trend in this data leveled off during the summer. For the year to date, output of plastics parts is up 6% compared to the same period a year ago, but the rate of growth has decelerated in recent months. We expect the trend to regain its momentum for the remainder of the year, and our forecast still calls for an annual increase of 6% in the total volume of plastics products this year. This follows a similar gain of 6% in 2012.

The capacity utilization rate for the plastics industry continues to hover just below the 75%-level. If these data are correct, it indicates that utilization rate for plastics processors is virtually unchanged since the beginning of the year. This is surprising given the solid rate of growth in total output, and it is certainly not sustainable in the long run. If our forecast for continued expansion in output levels holds true, then utilization rates will be pushed upward by the end of the year.
 

Lessons from amerimold 2013 – Part 2: Bring the Kids


By: Bill Wood 20. June 2013

 

One of the really good ideas I heard discussed at the amerimold 2013 tradeshow and conference last week involved making the show “kid friendly.” We can all acknowledge that one of the biggest problems facing the North American moldmaking industry at the present time is the “skills gap.” Further, there is a strong consensus that one of the main reasons for this gap is a shortage of young people entering the trade.
So it occurs to me that one way to address this shortage would be to invite young people to the tradeshow and conference. Then we could show them all of the cool and exciting stuff that is happening in the moldmaking industry, and let them talk directly to moldmakers and shop owners. This is a routine practice at the large and successful Euromold show.

There were two reasons offered for why we do not have more kids attending amerimold. First, somebody said that kids under the age of 18 were not allowed on the show floor for insurance reasons. I have not verified this as being factual, but it does seem plausible. It also seems very easy to change. Insurance companies and their policies exist to serve us, not the other way around. If we want to have young people at the show, then we can simply ask for an insurance policy that will accommodate this. It might cost a bit more, but I believe any additional cost can be justified by the opportunity to meet and recruit future mold makers.

The other reason offered was that the people working the booths do not want to waste their time answering questions from kids who are not there to purchase something. It seems that there is this notion that students (re: prospective employees) do not qualify as “good leads.” Apparently, these kids will eat all of your free candy, take all of your free merchandise, and get in the way of your real customers.
This may all be true, but keeping kids away from the show seems short-sighted to me. There are other industries out there that are actively recruiting young people. There are many colleges that do not offer a single class in the industrial arts that are aggressively marketing their programs to kids. There are college fairs and job fairs where kids can meet representatives and ask questions.

We need to figure out a way to make time for young people at our tradeshow. People who are already in this industry need to feel comfortable about bringing their families. We all must take the time and spend the money to make an investment in the future of this industry.
 

Total MoldMaking Business Index for April 2013: 49.0


By: Bill Wood 20. June 2013

Our latest survey of the North American moldmaking industry indicates that overall activity levels slipped a bit in April. The MoldMaking Business Index for April 2013 is 49.0 (a value less than 50.0 indicates a decrease in business levels for the month). The latest index value is a 2.2-point decrease from the March value of 51.2, and it is a 5.8-point decrease from the 54.8 value posted in April 2013.

Though our Index came in modestly weaker than the previous month, it should not yet raise many concerns. If the index begins a more rapid downward trajectory, it would indicate that manufacturers were aggressively cutting back on production and investment. But the index would need to stay below the 45-level for a few months for this to be a major concern. GDP growth this quarter will likely come in below 2%, but it will gradually accelerate in the second half of the year. This quarter, the economy is digesting the fiscal drag caused by lower government spending and stagnant income growth for households.

The New Orders component came in at 50.0 in the latest month, which means that the level of new business was unchanged when compared with the previous month. The Production sub-index of 52.7 indicates that work levels increased moderately when compared with the previous month. Anytime you have a month in which new orders are flat, but production levels increase the logical result is a decline in backlogs. This is exactly what happened in April as the Backlogs sub-index fell to 40.7 for the month. The Employment component is 51.7, which means that payrolls were higher for the fourth straight month, but the rate of expansion is decelerating.

The prices received in the moldmaking sector weakened a bit in April. The Prices Received sub-index for March is 49.0. The upward momentum in the sub-index for Materials Prices continued to decelerate in recent weeks, and the Materials Prices sub-index eased back 61.4. So materials prices continue to rise, but the rate of the gains are moderating. Supplier Delivery Times are starting to stabilize, as this component registered 52.4 in April. Offshore orders extended their downward trend last month. The Exports sub-index was 46.8.

The MoldMaking Business Index is based on a monthly survey of subscribers to Moldmaking Technology magazine. Using the data from this survey, Gardner Research calculates a diffusion index based on 50.0. A value above 50.0 for the index indicates that business activity expanded when compared with the previous month, and a value below 50.0 means that business levels declined.

Corporate Tax Reform: Bring It On, But Please Do It Right


By: Bill Wood 9. May 2013

 
Corporate tax reform is an idea that is starting to get some attention in Washington. This is one area that could be greatly improved by our legislators. The United States currently has one of the highest corporate tax rates in the world. Few will dispute that lowering our corporate tax rate will improve our competitiveness in the global marketplace. But there is a huge debate about how low the tax rate should go and which, if any, of the myriad of current tax incentives should be eliminated or changed.
 
The current corporate tax rate in America is 35%. Because of loopholes, deductions, tax credits and other incentives few corporations actually pay this rate. For instance, the manufacturing sector gets tax breaks if they manufacture on U.S. soil, invest in equipment, or engage in R & D activities. So the effective tax rate that the total manufacturing sector pays is actually about 17%, not the great 35%.
 
The Obama administration is proposing that we eliminate all of the tax breaks and lower the corporate tax rate to 25%. So the effective tax rate for manufacturers would go from 17% to 25%. So Obama is more interested in raising revenues for the federal government than he is in making American manufacturers more competitive. Clearly, this is not the way to go.
I wholeheartedly endorse the idea of eliminating loopholes, deductions, credits, etc. Get rid of all of them. They distort the market, and thereby end up doing more harm than good in the long run. But once all of the incentives are removed, the corporate tax rate should be lowered to 20%.
 
I did not pick this number at random. It turns out, that 20% is the best the government can ever hope for no matter what. History shows that government revenues over the past few decades always fall in the range of 17% to 19%. It does not matter what the prevailing tax rate is at the time, and it does not matter how much the government spends. Total federal revenues never rise above 20% of GDP. When the rates are higher than 20%, corporations find ways not to pay. The most popular way to avoid paying more than this is to simply move your operation overseas.
 
So if 20% is the best they can do, let's just make this the rate and be done with it. The money that manufacturers currently spend hiring tax consultants, and tax lawyers, and accountants could be spent on workers or equipment that actually produce competitively priced goods and services. I believe that money would be repatriated from overseas, and compliance rates would improve significantly. The net result would be more revenues for the government. It would also make us a more competitive place for foreign companies to invest.
I can think of no downside. Lowering rates to the optimal level of 20% is good for everyone, even Democrats and Republicans. So why are we waiting?

US GDP Outlook: Sluggish in Q2, Followed by Stronger Growth


By: Bill Wood 25. April 2013

 

 
 
 
We will get our first look at the GDP data from the first quarter of 2013 this Friday when the Bureau of Economic Analysis releases its preliminary report. We expect the data to show that the US economy grew at a pretty decent rate in Q1. Consensus expectations call for a growth rate just north of 3%. This is considerably faster than the 0.4% pace of growth that was registered in the fourth quarter of last year, and it is very close to the long-term average for the US economy.
 
Unfortunately, this pace will not be sustained. The headwinds to growth resulting from the cumulative effects of increased payroll taxes, sharp cutbacks in government spending, and sluggish export growth will restrain economic expansion through the remainder of this year. These headwinds will have their greatest impact in the second quarter of this year. Our forecast calls for GDP growth in Q2 of 2013 to be no better than 1.5%.
But the good news in all of this is twofold: 1) economic growth in Q2 may be slow, but it will still be positive; and 2) the second quarter is already partially over so the pain will not last much longer. So while Q1 will likely be the best quarter this year in terms of growth, Q2 will probably be as bad as it gets. After this current quarter, things will start to improve at an accelerating rate.
 
To be sure, May and June could be stressful for some sectors of the economy. Many in the manufacturing sector will not be as busy as they would like to be. This will be especially true for those firms who supply the federal government with goods and services. But barring an unforeseen shock, the major economic indicators should be in a well-established trend upward by the end of the summer, and a prolonged period of solid economic expansion should follow.

 




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