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U.S. Metalworking Facilities Expected to Spend $6.2 Billion on New Metal Cutting Equipment

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Steve Kline Jr., director of market intelligence of Gardner Business Media, gives a forecast of the machine tool industry and what it means for the economy.

Penny Brown from AMT — The Association For Manufacturing Technology sat down with Steve Kline Jr., director of market intelligence of Gardner Business Media to find out what markets are strong for the machine tool industry and what it means for the economy.

Overseas Markets

Mexico is a strong market for manufacturing. There is an increase in automotive and aerospace production as well as die and mold. A lot of companies at the OEM level are building factories in Mexico. Also their supply base is starting to build up. We are seeing a very strong increase in capital spending equipment in Mexico, which indicates their manufacturing economy is quite strong.

Countries in Southeast Asia are also doing well. Vietnam, Indonesia, and Thailand are doing quite a bit in manufacturing.

China is still suffering an extreme bubble from the effects of misallocated investment in all things construction. They ventured into high levels of steel, concrete and railroad-building cities that people are not living in. Rapidly bringing people from the farm and into the manufacturing environment proved unsustainable. China is suffering from not putting investment in the right place.

U.S. Market

Domestically, there was a peak year 2011 for machine tools. Since then, numbers have looked low when compared to the 2011 peak numbers. Up to then, capital equipment spending was doing well. It didn’t matter what industry you were serving or product you were selling. People were buying; so being a seller of capital equipment was pretty easy. Now things have switched to where the buyer is more in control of the process. Companies have to be more targeted.

Automotive is strong. Aerospace is particularly doing well with new developments. There continues to be strength in pump and valves products, somewhat related to the oil and gas market. Primary metal machining coming from foundries are strong also.

What does the strong dollar and cheaper gas mean?

Both can change direction very quickly. These metrics were moving in a direction that was positive for capital equipment. We expected 2015 to be very strong for the capital equipment market, but then we saw record rates of change in these two measures. They had a dramatic impact on business. Typically metrics, using the rate of change, tend to move in symmetrical ways. Expect similar movement down in the dollar and up in the price of oil. Now the questions is the timing of that. We’re likely to see more rapid movement to get us back to a normal environment.

Machine Tool Consumption Forecast

Our forecast specifically looks at machine tool consumption, which is an indicator of economic activity. There is an indication that the economy is going to slow down a little bit. We are in a seven to nine year growth cycle of machine tools. We are due for a bit of contraction in the machine tool market. That is not anything out of the ordinary. Any economics book will say this is the classic case of a cyclical industry. It will not be drastic like in 2001 or 2009. It will be just a pause in the industry. About 20 to 25 percent, which is a normal contraction. Growth will resume within a year or two. When you run a company in this industry you have to deal with cycles and balance out profit, employment and capabilities over a three to five year stretch as opposed to planning for constant consistency.

You can find Gardner Research’s Capital Spending Survey at www.gardnerweb.com and get more manufacturing technology forecasts at the Global Forecasting & Marketing Conference at www.AMTonline.org/GFMC.

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