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Spring has Sprung. Has the Economy?

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At the recent IMTS Spring Economic Update webinar, AMT Economist and Vice President of Strategic Analytics Pat McGibbon recently discussed the state of the U.S. economy, its forecast through 2018, and what it means for the manufacturing industry. (AMT – The Association For Manufacturing Technology owns and operates IMTS – The International Manufacturing Technology Show.)

Pat opened with a cartoon showing a packed family station wagon. The kids ask, “Are we there yet?” If you are asking about the economy, Pat declares we are in a growing economy, and if we were arriving at the amusement park, then the fun is about to begin. He is quick to point we are not officially in a growing economy as three consecutive months must show growth. Though he is certain the numbers will soon make it official. He happily reports machine technology companies are calling with questions that indicate they are busy as opposed to “Where is the busy?”

Increases in Global Trade
Trade and GDP are directly related; growth in trade is indicative of an expanding economy. An increase in global trade among the European Union, the United States, China, Brazil and India indicates economic growth. India’s GDP is expected to reach 7.5 percent for 2017 and reach even higher for 2018. With an increase in GDP for the past three quarters, Brazil has officially come out its recession, helping other South America countries. Better global trade and a higher GDP means a stronger labor market and more disposable income to increase demand for consumables.

Oxford Economics expects a pick-up in global trade at the end of 2017 and throughout 2018. Three significant factors and stress points are:

1.    The European Union markets remain strong due to a weaker euro, making EU products a better value and significantly increasing exports to Malaysia, Indonesia, Singapore, Thailand, China, Japan and Korea. The outcome of the French election points to more global trade. Though the debt management negotiations between the EU and Greece as well as Italy’s internal challenges (political and economic) are putting a strain on the European Union. 
2.    China’s stimulus package is working and China continues to increase trade with other countries, though there are concerns that it may plateau in 2018. The United States and China are the largest economies in the world. If one suffers, the world suffers.
3.    U.S. political distractions have led to more volatile financial market swings, but overall the Dow and S&P have grown markedly since the election in November.

Cutting Tool Market Make Steady Gains
The top 10 indicators that AMT monitors as to the health of the manufacturing technology market are coming in strong. In addition to those indicators, the Cutting Tool Market Report for March posted the fifth consecutive year-over-year increase, suggesting that machine utilization is climbing. Capacity utilization continues to move on an upward trend, though monthly vacillations continue to occur. Corporate profits for the manufacturing sector continue to grow steadily since the fourth quarter of 2015. The stage is set for consistent growth in the manufacturing technology sector on a year-over-year basis starting in the second quarter. The arrow for the manufacturing technology business conditions is not only green in May but it is also pointing upwards for growth, though not at a double-digit pace seen in the beginning of past recoveries.

Purchasing Managers’ Index Continues to Indicate Expansion
The Purchasing Managers’ Index posted an April figure of 54.8, the eighth month in a row that the index exceeded the expansion level basis of 50. While April’s number fell slightly from March, key components of the index such as the production index continued to expand. The new orders, employment and inventories of raw materials components of the composite index also expanded in April, yielding a positive outlook on the likelihood of continued expansion of the manufacturing sector.

Increase in Orders for Durable Goods
Orders for durable goods moved up by a $1 billion in March over February, led primarily by a strong pickup in the transportation industry, particularly aerospace orders. Housing starts fell slightly but remain above one million units, which outpaced March 2016 by 9 percent. The only negative in the customer industry segment is the lower production and sales of light vehicles. Trucks and SUVs posted increased sales in March and nearly offset the decline in small cars, small trucks and minivans. Still, light vehicle sales at an annual pace of 16.5 million units is a rate that generates production machinery demand. 

New Capital Commitments Largest in a 90-day Period Since 2012
Stats aside, the real news is the top five sectors [automotive & components, energy (traditional & alternative), metal, steel shapes & foundry, space & defense, and industrial machinery] have announced commitments of $6 billion in new capital (investment) worldwide with an estimated 7,500 new jobs. This is the largest amount for new capital commitments in a 90-day period since 2012.

Gain Insight into Economic Conditions
Check back to tune into the IMTS Summer Economic Webinar scheduled for the second week in August.

If you would like more insight into economic conditions for the manufacturing technology market, join AMT for the 2017 Summer Economic Update Webinar, July 26, 11:00 a.m. to 12:00 p.m. (ET) and attend the 2017 Global Forecasting & Marketing Conference, October 11-13 in Atlanta, Ga. GFMC is specifically tailored for the advanced manufacturing industry.