Business Conditions Ease a Bit

Our Mold Business Index has historically exhibited some seasonal weakness during the early months of the year. Our forecast calls for the Index to rebound as 2006 progresses.

Following a solid gain in mold demand at the end of 2005, business conditions for North American moldmakers eased a bit in the first month of 2006. Based on the latest survey for our Mold Business Index (MBI), the MBI value for January was 46.2. This was a 6.1 percentage point decrease from the December value of 52.3. Decreases were posted in all of the components that make up the MBI except Employment, which held steady in the latest month and Future Expectations, which remained elevated.

But this latest decrease notwithstanding, our forecast continues to call for increasing market demand for new molds in 2006. We believe that the decline in January was due to seasonal factors and that it will be short-lived. An analysis of the historical data shows that the MBI often registers some deceleration in the market in the early months of the year. It takes more than one month to make a trend, and so far, the trend in overall market demand for new molds remains on a gradual upward trajectory. Plastics processors remain in a longer-term cyclical upturn in spending on new capital equipment and tooling. Most of the major economic indicators show that plastics manufacturing levels in the U.S. increased in recent weeks, and the U.S. economy’s crucial leading indicators are still in a sustainable growth phase. The major threat to this forecast is the high price of petroleum and other energy products.

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The latest sub-index for New Orders of molds was 48.4, which means that the amount of new business in January was slightly below the level of the previous month. Production activity also declined in January, as the latest Production sub-index was 43.5. The Employment component was exactly 50.0, which indicates that the total number of workers in the industry was unchanged. The industry’s overall backlog declined, as the Backlog sub-index was 43.5.

The Mold Prices sub-index for January was an anemic 38.7. This means that overall price pressure for new molds increased. The prices paid for resins and steel remain high, as the latest sub-index for Materials Prices registered 69.4. Supplier Delivery Times slowed again, and this sub-index posted a value of 43.5 in January. The number of offshore orders for new molds was steady-to-down last month. The Export Orders sub-index was 48.4.

The Future Expectations sub-index at 72.6 for January was only slightly lower than the reading from the previous month, and it continued to indicate that mold-makers are optimistic about business con-ditions in the coming year. However, there was very little change in their reported capital investment plans for the future.