November Orders Up, But Not a Trend & Good News on Tax Extenders
The November 2015 U.S. Manufacturing Technology Orders Report (USMTO) showed orders increased two percent. At first glance, two percent sounds good, but digging deeper one sees that the average value went up 22 percent, indicating unit volumes went down by about 15 to 16 percent—not great news. This means that overall units are down. The average value was up because orders included more productivity and automation add-ons to the equipment being purchased.
The good news is that we are seeing activity and growth in the export and domestic markets. We’re staying on the path that we have been projecting the last five to six months.
We’re going to have a really tough end of the year. December dollar volumes might be up a little bit, but we’ll probably see units being about the same place they were for October and November. We’ll also see this same trend occur well into the first half of 2016.
While the rest of the country is down about 17 percent, the Northeast is up three percent. It’s not just because of dollar volumes, their unit values are up as well. Booming business in the last half of 2015 in aerospace, computer, electronics, and appliances have helped pull New England out from a negative number in the first half of 2015 into a positive rate as 2015 closed out.
The Southeast has been the fastest growing region. Volvo has a billion dollar project going into South Carolina. Boeing put another billion into their facilities in Charleston. Several major auto parts manufacturers from Korea, Japan and Germany have built facilities in Georgia and Alabama—supplying a 400-mile radius of automotive plants. The Southeast is becoming the new Detroit of the United States.
Computer and electronics have seen a significant increase. They are leading productivity and automation enhancements with add-ons to the equipment.
In addition, the medical equipment industry in Minnesota has made noteworthy increases.
As a result of growth in the housing market from last summer and the entire fall, the HVAC and appliance industries are now paying off. An outcome from the increase in metal products that go into the construction of the house and manufacturing of the air conditioning, heating system, garage doors and more.
These new houses need at least one car in the driveway contributing to the good health of the automobile industry and into 2017.
China – Not all Bad News
The negative news surrounding manufacturing in China may have you down, but let’s get real. The U.S.A. is the largest manufacturer in the world. By a large margin, China is the second. Though smaller, China is still a big market representing 40 to 50 percent of all the machines bought in the world. Their manufacturing sector is growing much slower and it’s at a rate that really can’t help accelerate the economy. But it’s still going and that’s improvement.
All the signs we hear from our colleagues in Shanghai and Beijing suggest that there should be some significant improvement in 2016. AMT’s Primary Director of Asian Affairs, Xingbin Li spoke at our Global Forecasting & Marketing Conference in October about how the secondary tier of the market, the plants and manufacturing facilities, that are hundreds of miles offshore are starting to blossom. That’s going to be a big opportunity this year and in 2017.
In a recent AMT survey our members indicated stability as one of the most critical issues in manufacturing and business strategy planning. A bi-partisan Congress passed legislation that makes bonus depreciation extended for five years. So members know what the tax law will be long term. Congress made Section 179, and the R&D tax credit permanent. This gives members the ability to use these as a sales tool in 2016. In addition, the limits are raised from 2014 and similar to the beginning of this decade. The page explains the benefits. Review this information and put it into your sales tool. This will help make your sales team more effective and help explain the benefits to your customers.
The Good News about the Interest Rate Increase
In December, as you know, for the first time in nine years, the Federal Reserve increased the interest rate. That will slow things down some, and take money out of consumers’ pockets, but it will also have the impact of pushing people to make decisions on large capital expenses. Compared to past decades a three to four percent interest rate is a low interest rate and desirable for capital expenditures. It’s one of the reasons we think the manufacturing technology industry will pick up in the late May or the early part of the summer and be in great shape before IMTS 2016.
Read the full press release here.