ToolTalk: The Trend in Capital Spending for New Equipment Bodes Well for Mold Demand
Reliable data that measures activity levels in the North American moldmaking industry is scarce. Every month we publish the results of our Mold Business Index Survey, but this Index has some limitations. For one, it measures only the recent trends in business activities such as New Orders and Production levels (did they increase, decrease, or stay the same when compared with the previous month?). Our Index does not measure the actual levels (i.e. the number and/or the dollar value of the new molds that were ordered).
And secondly, our Index is based on a relatively small sample of the industry. In other words, it is not a census of the entire moldmaking sector. For this reason, nobody really knows just how many molds are ordered, built, or shipped in North America in a given month or year, nor does anybody know the value of these molds.
So when it comes time for a mold shop to forecast its future business levels, one must seek out alternative indicators. One indicator that we consistently monitor is the trend in capital spending on industrial equipment. This data series is compiled and released on a quarterly basis by the U.S. Bureau of Economic Analysis as a part of its quarterly report on total GDP in the U.S. Equipment for the plastics industry—such as molds, injection molding machines, screws, barrels, etc.—make up only a tiny fraction of this data series. But the trend in this data is an important indicator of the fundamental market conditions and overall demand for industrial products.
Chart 1 of this data shows at a glance of whether businesses are increasing or decreasing their investment in equipment and tooling. And as the recent trend indicates, the news is definitely getting better. As Chart 1 illustrates, there was a dramatic drop in business investment in the first quarter of 2009, and things got progressively worse during the next year. But there was a marked improvement starting in the second quarter of last year, and since that time the trend has steadily improved.
In percentage terms, total business investment in industrial equipment fell by 4% in 2008, and it then plummeted by 23% in 2009 when compared with the previous year. In 2010 the capital spending total rebounded 6%, and our conservative forecast for 2011 calls for a gain of 9%-12%. This forecast is based on continued improvement in the overall U.S. economy combined with the tax incentives for capital spending on equipment that were part of the tax compromise bill passed by Congress late last year.
It is worth noting that the trend in this data on total spending for industrial equipment correlates closely with the trend in the data on plastics machinery. The Committee on Equipment Statistics from the Society of the Plastics Industry (SPI) captures and reports data on the number of plastics processing machines each month. The actual data is only available to member companies, but the trend in this series also suffered a sharp decline during the first quarter of 2009. It then languished at a low level during the next year before starting a recovery in the second quarter of 2010. The trend in the data on plastics machinery, particularly injection molding machinery, is another good indicator of demand for plastics molds, and I encourage all moldmakers to get involved in the SPI statistical efforts if they are not already a member.
So the outlook for the coming year for the moldmaking industry looks very favorable based on the trends in spending for industrial equipment and plastics machinery. But this forecast is not a guarantee, as things are constantly subject to change. Stay tuned.
Finding, Training & Retaining Employees, Part 13
A Series of International Standards for Quality Management and Quality Assurance
Valve gate installations must be made to manufacturer specs to obtain the advantages necessary for competitive production of injection molded parts in today’s marketplace.