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Future Expectations Increasingly Optimistic

Total Mold Business Index for November 2010: 42.5

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The Mold Business Index (MBI) for November 2010 is 42.5. This is an 8.8-point decrease from the October value of 51.3, and it is a 7.5-point decrease from the MBI value of 50.0 posted in November of last year. There was a drop in both the New Orders and Backlogs components for November, while most of the other components were steady. The decline in New Orders this month corresponded with the well-documented cooling in the pace of the overall U.S. recovery. Despite this slowdown, the Future Expectations sub-index indicates that moldmakers’ attitudes about future business levels are increasingly optimistic. Mold Prices are stabilizing, but Materials Prices continue to rise.

Though it will add to the budget deficit in the long-run, there should be little doubt that the tax cuts/unemployment benefits compromise reached this week by the Obama administration and congressional Republicans will be good for the economy in the short-term. The temporary tax cuts and spending increases will provide a substantial boost to GDP growth in 2011, ensuring that the tenuous economic recovery strengthens into a self-sustaining expansion. Real GDP growth in 2011 will be 4%, and job growth will be more than twice as strong as it would have been without this boost. Unemployment will be more than a percentage point lower; instead of hovering near 10% through the year, it will end 2011 well below 9%.

This is not to say that it will be smooth sailing from here on. November's employment report illustrated the struggles the recovery will experience during the next few months before it transitions to an accelerating upswing. Private sector employment growth dropped to its slowest pace since May, while the unemployment rate rose to 9.8%. The unemployment rate is still expected to peak in mid-2011 and payroll growth will accelerate in the latter half of the year. In contrast with the recent employment data, the ISM manufacturing and non-manufacturing indices for the month pointed to expansion. These positive signs suggest the employment data will be higher in coming months and the labor market is merely going through growing pains.

The New Orders component for our MBI indicates that the number of new projects slumped in recent weeks, as this sub-index for November is an anemic 26.2. Production activity stayed steady, as the latest Production sub-index is 52.4. The Employment component is 64.3, suggesting that hiring activity actually intensified last month. The drop in new orders pushed the Backlog component down to 26.2 for November.

The Mold Prices sub-index for November is 47.6, and while there is little evidence that mold prices are rising, our survey indicates that the rate of decline slowed in recent weeks. The prices paid for materials continue to escalate. The sub-index for Materials Prices is 59.5. Supplier Delivery Times were slower, as this sub-index is 42.9. There was a moderate decline in offshore orders for new molds, as the Export Orders sub-index is 42.9.

The most-cited problem confronting North American mold makers in recent weeks is the shortage of skilled labor. Other problems receiving multiple mentions include: uncertainty about the U.S. economic recovery; getting paid in a timely manner; pressures from customers for lower prices and shorter lead-times; and offshore competition, especially from China.

Our Injection Molding Business Index (a measure of production levels for injection molders) posted another solid increase in the third quarter of 2010 when compared with the previous year. This Index has registered growth throughout 2010, and the latest forecast calls for a gain of 7% this year. Consistent gains in the Mold Business Index depend on sustained growth of 4% to 5% in the output of injection molded products. The trend in the mold making industry lags the trend in the processing sector by about six months.

The Mold Business Index is based on a monthly survey of North American mold makers. Mountaintop Economics & Research, Inc. conducts the survey, and then calculates a diffusion index based on 50.0. A value above 50.0 for the MBI indicates that business activity expanded in the previous month, while a value below 50.0 means that business levels declined.

For More Information
Bill Wood
Mountaintop Economics & Research, Inc.
(413) 772-6436,
billwood@plasticseconomics.com
plasticseconomics.com

 

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