Rising Corporate Profits Bode Well for Moldmakers
If you ask any red-blooded, patriotic American manufacturer what he or she is in business to make, the answer should be quick and simple. He or she is in business to make money. There may be some further explanation about making auto parts, medical devices, molds, or even friends, but the lifeblood of any business and the whole global economy is profit. Good intentions are great, but you must continually demonstrate the ability to convert your machinery and knowledge and hard work into more money by quitting time than you had when you started in the morning.
That is why the accompanying chart should be a welcome sight to moldmakers, because it shows that U.S. corporate profits are starting to rise. What is really interesting is that even though the economic recession in 2009 was the most severe since the Great Depression, the damage to overall corporate profits was less than during the previous recession in 2001. The one big exception to this was the motor vehicle industry, but even the recent news regarding profits in the auto sector is encouraging.
Once companies are making money, then the whole economy gains momentum. Banks will lend money to profitable companies, and investors will invest in stocks. Companies will hire new employees, which will in turn raise confidence levels and encourage consumer spending. And for moldmakers, the most important factor is that goods manufacturers will purchase more equipment and tooling when they have more money. There is a long and close correlation among the trends in the data that measure corporate profits and investment in equipment.
History teaches us there is usually a three- to six-month lag from the time that profits start to rise to the time that business spending for new employees and equipment starts to pick up. The demand for new molds should start to accelerate this summer, but I would not be surprised if quoting activity by moldmakers is already increasing.
So the near-term prospects for the domestic moldmaking industry are improving, but what about the long-term? After all, it was the desire to increase profits that has resulted in many orders for molds to go to low-cost, overseas suppliers. But here too, I think that the market conditions are improving. History also teaches us that over the long-term it is usually more profitable for suppliers to be near the markets they serve. That is why foreign auto makers have invested huge amounts of money to build factories in the U.S.
There are many reasons for this, and some of these reasons are starting to emerge in the mold industry. Things such as the quality of the workmanship, the quality of the materials,the cost of shipping, the service after the sale, the inherent cultural differences, and the currency exchange rates are increasingly being cited as reasons why manufacturing orders are returning to the North American suppliers. This trend will continue for the foreseeable future.
I routinely receive reports from moldmakers that the purchasing agents with whom they negotiate do not fully appreciate the value of a high-quality mold. The price of a mold does affect profits, but so does its performance over its lifespan. There is no easy solution to this problem, and educating the marketplace is oftentimes arduous work, but it must be done.