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Metals & Manufacturing Outlook – August 2016
I. Cover Story: THE MONTH THAT WAS: AND WHAT ANOTHER MONTH IT WAS
II. NORTH AMERICAN PERSPECTIVE
IV. MANUFACTURING TALK RADIO
V. ASIA OUTLOOK
VI. SOUTH AMERICA
VII. FORGING AND CASTING
VIII. MAINTAINING A PACE ABOVE STALL SPEED
IX. THE SKILLS GAP
XII. THE MANUFACTURING SCENE
XIII. TECHIE CORNER
XIV. OTHER NEW NEWS
XV. THE FINAL WORD
Once Upon a Time, there was a tortoise and a hare. The hare was quite spritely and quick, like the 80’s, or latter 90’s or early 2000’s. The tortoise, however, won the race if you recall Aesop’s fable. In China, they celebrate each year with an animal, so by comparison, I guess we are in the year of the tortoise in the U.S. with a GDP that will finish the race likely below 2%. However, next year looks to be an exciting year represented by the tortoise’s twin brother.
Another fable is that presidential election years are good years for business. These may be just fond memories of a wistful past because the near future and 2016 bear no such resemblance. Oh, it isn’t a disaster where GDP is negative, and it’s okay, it’s good, but it just isn’t…great.
Oddly, the Purchasing Managers Index generated by the Institute for Supply Management shows that the U.S. economy is in its 86th month of expansion with July being one of the best month’s yet. But, it seems to be driven by automotive and perhaps aircraft manufacturing even though 11 industries in manufacturing report growth. Yet, it just doesn’t feel right.
Explain it as we try, “It’s the end of summer,” “It’s a goofy election year,” “The manufacturing industry is still recovering from the Great Recession,” “It is the coming of robotics and the Internet of Things,” “It’s an absence of capital investment,” “It’s the U.S. tax structure finally catching up with us,” “It’s the weight of the national debt finally choking off government spending,” “It’s the drop in the Chinese economy,” “It’s the mixed recovery/recession in the EU,” “It’s the Millenials inability to find jobs and spend,” nothing quite hits the mark. Even all that together doesn’t quite explain how the manufacturing industry is growing but the GDP is lackluster.
However, this is not new news. All of 2016 has been ‘off’ and it began back in 2015. It’s difficult to call it ‘the new normal’ because nothing about it seems normal. We continue to look for the car guys Click and Clack of manufacturing so we can call to tell them, “Well, it’s making a sound like this and there is this vibration in the steering wheel, but the engine doesn’t seem quite right either. Do you know what it could be?”
Absent that, we continue to hunker down with one foot on the gas and one foot on the brake as we drive forward at a very cautious speed ready to floor it or screech to a halt depending upon what we see ahead, “but the road is long with many a winding turn that leads us to who knows where, who knows where…” (with credit to songwriters Bobby Scot and Bob Russell, and The Hollies, He Ain’t Heavy He’s My Brother, Published by Spirit Two Music Inc.
Lewis A. Weiss
I. COVER STORY: THAT WAS THE MONTH:
AND WHAT ANOTHER MONTH IT WAS
In the wake of Brexit, the falling pound and the halving of the interest rate to 0.25 percent, the UK’s ‘military contractors,’ aka arms dealers, are looking for new markets and have already had preliminary discussions with Turkey and India, two countries, particularly Turkey, who really need to buy arms.
The UK has its second female Prime Minister, Theresa May, who was quick to appoint Boris Johnson, the leader of the Brexit campaign, as Foreign Secretary. This blond, self-styled buffoon, whose antics both personal and political are forever in the news, will make an interesting addition to international diplomacy.
The U.S. created 255,000 jobs in July. This was less than June’s 292,000 jobs, but much better than the 175/180,000 figure analysts estimated. But, manufacturing has lost 24,000 jobs net year-to-date and has not caught up with pre-2008 employment levels.
Steel prices are continuing to hold up for the most part, particularly in North America and Europe, but there are still ‘gluts’ of steel around from China. Arcelor Mittal, the world’s largest steelmaker, announced its highest quarterly profit since 2014 following this recovery in prices.
China’s economy is said to have ‘stabilized.’
The ISM PMI figure for U.S. manufacturing was slightly off in the month of July to 52.6 percent from June’s 53.2 percent, indicating five months of growth in manufacturing and 86 months of growth in the U.S. economy as a whole.
The IHS Markit PMI for the U.S. manufacturing sector moved to 52.9 percent in July from June’s 51.3 reading. Markit noted faster growth in production, new orders and employment, heralding a strong start to the third quarter. Export sales increased at a modest pace in July, and employment was up, continuing an upward trend over the past three years, with the strongest rate of job creation since July 2015.
The five ISM components are equally weighted at 20 percent each. The Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories.
The Bureau of Economic Analysis came out with an ‘advance’ estimate for the annual rate of Real GDP growth in the second quarter of 2016, putting it at 1.2 percent. The figure for the first quarter was revised from its latest figure of 1.1 percent down to 0.8 percent.
GALLUP’s U.S. Economic Confidence Index jumped from a lackluster monthly average to end the month of July at -10. The job creation index was hovering around +33 in late July.
World crude steel production for the 66 reporting countries for the month of June 2016 was 135.7Mt, effectively unchanged y-o-y.
U.S. crude steel production, for June 2016 was 6.83Mt, down 0.1 percent y-o-y.
Primary Global Aluminum Production in June 2016 was reported at 4.844 million tonnes, of which 2.686 million tonnes, over 55 percent, was produced in China. The Gulf Corporation Council (GCC) produced 421,000 tonnes, North America 324,000 tonnes, Western Europe 307,000 tonnes and Eastern and Central Europe 326,000 tonnes.
Here are the latest figures for US new car and light truck sales for ‘the big eight’ for July 2016. There are those who say sales were better than expected, others who suggest that sales may have reached a plateau. The SAAR is estimated at 17.9 million.
|The ‘Big Eight’||June ’16||June ’15||YTD % change|
|Total new cars and light trucks||1522144||1511261||0.7|
THE ECONOMIST magazine, in its latest weekly report on world economies, highlights changes in Gross Domestic Product (GDP), Industrial Production, Consumer Prices and Unemployment Rates for what it considers the world’s major economies. These data are not necessarily good to the present day, but are mostly applicable to at latest the past two months, and show definite trends in the world economy. The figures are qualified as being the latest available, and with reference to a given quarter or month. The figures for GDP represent the % change on the previous quarter, annual rate. The industrial production figures represent year-on-year changes, as do the consumer prices increases. The unemployment figures, %, are for the month as noted.
|GDP||Indl Prodn||Cons prices||Unemployt|
|United States||+1.1 (qtr)||-0.7 (June)||+1.0 (June)||4.9 (June)|
|Canada||+2.4 (qtr)||+0.9 (Apr)||+1.5 (June)||6.8 (June)|
|China||+7.4 (qtr)||+6.2 (June)||+1.9 (June)||4.1 (Qtr 2)|
|Japan||+1.9 (qtr)||-0.4 (May)||-0.4 (May)||3.2 (May)|
|Britain||+2.4 (qtr)||+1.4 (May)||+0.5 (June)||4.9 (Apr)|
|Euro Area||+2.2 (qtr)||+0.5 (May)||+0.1 (June)||10.1 (May)|
|France||+2.6 (qtr)||+0.5 (May)||+0.2 (June)||9.9 (May)|
|Germany||+2.7 (qtr)||-0.4 (May)||+0.3 (June)||6.1 (June)|
|Italy||+1.0 (qtr)||-0.6 (May)||-0.4 (June)||11.5 (May)|
|Spain||+3.1 (qtr)||+4.0 (May)||-0.8 (June)||19.8 (May)|
|India||+9.6 (qtr)||+1.2 (May)||+5.8 (June)||4.9 (2013)|
|Brazil||– 1.1 (qtr)||-7.7 (May)||+8.8 (June)||11.2 (May)|
|Taiwan||+ 3.1 (qtr)||+0.9 (June)||+ 0.9 (June)||4.0 (June)|
|Mexico||+3.3 (qtr)||+0.4 (May)||+2.5 (June)||3.9 (June)|
II NORTH AMERICAN PERSPECTIVE
by Royce Lowe
The Institute of Supply Management PMI figure registered 52.6 percent in July, off 0.6 percentage points from June’s 53.2 reading, representing growth in manufacturing for the fifth consecutive month, and growth in the overall economy for the 86th consecutive month.
Eleven of the 18 manufacturing industries reported growth in July in the following order: Textile Mills; Printing & Related Support Activities; Miscellaneous Manufacturing; Wood Products; Furniture & Related Products; Chemical Products; Food, Beverage & Tobacco Products; Fabricated Metal Products; Nonmetallic Mineral Products; Petroleum & Coal Products; and Computer & Electronic Products. The seven industries reporting contraction in July, in order are: Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Machinery; Primary Metals; Transportation Equipment; and Paper Products.
Respondents’ comments from the industry were positive from Fabricated Metal Products; Computer & Electronic Products; Nonmetallic Mineral Products; Food, Beverage & Tobacco Products; Chemical Products and Plastics and Rubber Products, whereas Wood Products respondents had problems with oversupply and weather, Transportation Equipment and Machinery noted a slowdown in sales and production. Petroleum and Coal Products respondents say $40/50 per barrel oil is the new normal. There is some vigilance noted regarding both Brexit, the U.S. Presidential race and steel prices.
The following 5 components of the ISM’s PMI, New Orders, Production, Employment, Supplier Deliveries and Inventories are equally weighted and used to calculate the PMI number. A monthly PMI over 50.0 indicates an expanding economy; a number over 60.0 indicates strong manufacturing output, although overheating may occur.
New orders grew in July for the seventh consecutive month, with the index at 56.9 percentage points, hardly changed from June’s 57.0 percent reading. Growth was noted in twelve of the eighteen industries surveyed, including Chemical Products, Fabricated Metal Products, Petroleum & Coal Products and Primary Metals, with five industries, including Machinery, Plastics & Rubber Products and Transportation Equipment, showing a decrease during the month.
Production grew for the seventh consecutive month in July, with the index at 55.4 percentage points, 0.7 points up on June’s 54.7 percent reading. Growth was noted in nine of eighteen industries, including Chemical Products; Petroleum & Coal Products; Nonmetallic Mineral Products; Fabricated Metal Products; and Paper Products. The six industries reporting a decrease in production during July include Machinery; Transportation Equipment; Plastics & Rubber Products; and Primary Metals.
Employment fell one percentage point in July to 49.4, from June’s 50.4 reading, representing contraction in employment following one month of growth. Employment growth was noted in eight industries, including Textile Mills; Miscellaneous Manufacturing; Chemical Products; Food, Beverage & Tobacco Products; and Fabricated Metal Products. The seven industries reporting a decrease in employment in July include: Plastics & Rubber Products; Electrical Equipment, Appliances & Components; Machinery; Petroleum & Coal Products and Transportation Equipment.
The delivery performance of suppliers to manufacturers was slower in July as the index registered 51.8 percent, or 3.6 percentage points lower than June’s 55.4 reading. Ten industries showed slower deliveries in July, including Fabricated Metal Products; Petroleum & Coal Products; Machinery; Plastics & Rubber Products and Transportation Equipment. The only industry reporting faster supplier deliveries in July is Primary Metals. Seven industries reported no change in supplier deliveries in July compared to June.
Raw Materials Inventories contracted for the 13th consecutive month in July but at a slower rate than in June, as the Inventories Index increased to 49.5 percent in July from June’s 48.5 percentage points. Eight industries reported higher inventories in July, including Wood Products; Chemical Products; Fabricated Metal Products; Machinery; Transportation Equipment; and Furniture & Related Products. The eight industries reporting lower inventories in July include: Primary Metals; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; and Plastics & Rubber Products.
The following 5 components of the ISM’s PMI, Customer Inventories, Prices, Backlog of Orders, Exports and Imports are not used to calculate the PMI number but are tracked for trends in the marketplace
The ISM Customers’ Inventories Index registered 51.0 percent in July, the same value as June’s reading, meaning that customers’ inventories are considered to be too high in July. Six manufacturing industries report customers’ inventories as being too high during the month of July, including Nonmetallic Mineral Products; Chemical Products; Fabricated Metal Products and Transportation Equipment. Six industries report customers’ inventories as too low during July, including Primary Metals; Plastics & Rubber Products and Machinery. Six industries reported no change in customer inventories in July compared to June.
The ISM Prices Index registered 55.0 percent in July, which is 5.5 percentage points lower than June’s 60.5 percent reading, indicating an increase in raw material prices for the fifth consecutive month. In July 22 percent of respondents reported paying higher prices, 12 percent lower and 66 percent the same prices as in June. Twelve industries reported paying higher prices in July, including Petroleum & Coal Products; Plastics & Rubber Products; Machinery; Fabricated Metal Products; Chemical Products; Transportation Equipment; The three industries reporting paying lower prices during the month of July are: Textile Mills; Miscellaneous Manufacturing; and Computer & Electronic Products.
Up in Price in July were:
Copper*; Corrugate* (2); Dairy; Diesel (4); Gold; Natural Gas (2); Petroleum Based Products; Polyethylene Resins; Stainless Steel (4); Steel (7); Steel — Carbon (2); and Steel — Hot Rolled (6).
Commodities Down in Price
Copper*; Corn; Corrugate*; and Steel.
Commodities in Short Supply
* indicates both up and down in price
Note: The number of consecutive months the commodity is listed is indicated after each item.
The ISM Backlog of Orders Index was at 48.0 percent in July, 4.5 percentage points down on the June reading of 52.5 percent, indicating contraction in order backlogs following one month of growth. Of the 86 percent of respondents who measured their backlogs, 16 percent reported greater backlogs, 22 percent smaller backlogs and 64 percent no change from June. Six industries reported an increase in order backlogs in July, namely Textile Mills; Printing & Related Support Activities; Chemical Products; Paper Products; Miscellaneous Manufacturing; and Fabricated Metal Products. The 10 industries reporting a decrease in order backlogs in July include Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Primary Metals; Transportation Equipment and Machinery.
The ISM New Export Orders Index was at 52.5 percent for July, 1.0 percentage point down on the June reading of 53.5, representing growth in new export orders for the fifth consecutive month. Eight industries reported growth in new export orders in July, including Miscellaneous Manufacturing; Paper Products; Fabricated Metal Products and Transportation Equipment. The six industries reporting a decrease in new export orders during July include Primary Metals; Electrical Equipment, Appliances & Components; Machinery; and Plastics & Rubber Products.
The ISM Imports Index is at 52.0 percent in July, the same reading as June, representing growth in imports in for the second consecutive month. Six industries reported an increase in imports in the month of June, including Computer & Electronic Products; Fabricated Metal Products; Machinery and Chemical Products. The four industries reporting a decrease in imports during July are: Nonmetallic Mineral Products; Miscellaneous Manufacturing; Plastics & Rubber Products; and Electrical Equipment, Appliances & Components. Seven industries reported no change in imports in July compared to June.
CANADA’S IHS Markit Manufacturing PMI increased very slightly to 51.9 in July from June’s 51.8 reading, with production up at a faster rate in July as it moves up from June’s three-month low. This is the fifth consecutive month in growth territory.
Production, new orders and employment showed what might be termed modest increases. There has been a sustained increase in production levels since March, and there has been a joint-fastest rise in staffing levels since December 2014.
Manufacturing production expanded in all regions and the fractional rise in Alberta and BC put a stop to a 17-month period of decline in those provinces. Job creation was strongest in Ontario and the ‘Rest of Canada.’ Canada produced 1.04 Mt of crude steel in June, down 2.8 percent y-o-y.
Canada’s light vehicle sales were off 2.6 percent at 172,796 units in July, down from 2015’s 177,568 figure. This was due primarily to car sales being down 11.3 percent over last year, from 66,402 units to 58,900 units. It is interesting to note that the record for car sales in Canada was set back in July1985, when 91,765 cars were sold.
MEXICO’s PMI slipped to a 33-month low of 50.6 in July, from June’s 51.1 level. Manufacturing growth slowed in July on the back of the weakest increase in new orders since September 2013, with new export orders down for the first time since October 2014. There was a marginal improvement in employment. Mexico produced 1.525Mt of crude steel in June, down 0.9 percent y-o-y.
However, Mexico’s maquiladoras are coming online in the automotive industry, supporting jobs in the U.S. are component parts made in the USA are shipped to Mexico for assembly. Mexico already ranks as the seventh-largest car producer in the world. Chrysler, Honda and Volkswagen have major operations there. Over the next five years, big automakers including Ford, Audi and Toyota plan to bring new plants online.
by Royce Lowe
IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for July, at 52.0 was down from June’s 52.8 reading, as growth slowed in the Eurozone at the start of the third quarter. Production stayed strong, as did an accumulation of order backlogs. Germany stayed up top, with good results on new export orders and production, whereas France and Greece were in contraction, in spite of higher export orders. Ireland’s poor performance in July is considered to be due to concerns over Brexit.
|Germany||53.8 (54.5)||2-month low|
|Austria||53.4 (54.5)||2-month low|
|Netherlands||53.2 (52.0)||4-month high|
|Italy||51.2 (53.5)||18-month low|
|Spain||51.0 (52.2)||31-month low|
|Ireland||50.2 (53.0)||38-month low|
|Greece||50.4 (48.4)||25-month high|
|France||48.3 (48.4)||2-month low|
With fewer selling days and big hits on VW figures, car sales in Western Europe look somewhat different in July. Sales in Germany were down 3.9 percent to 278,866 units, in France down 9.6 percent to 132,999 units, in Italy up 2.9 percent to 136,275 units and in Spain up 4.9 percent to 107,306 units. Seven-month figures in all four major countries show a healthy increase over those of the past year.
Crude steel production in Germany in June was at 3.69Mt, down 2.1 percent y-o-y; in Italy 2.03Mt, up 5.9 percent y-o-y; in France 1.31Mt, down 5.1 percent y-o-y and in Spain 1.13Mt, down 13.7 percent y-o-y.
Russia’s crude steel production for May was at 5.78Mt, up 2.5 percent y-o-y; Ukraine’s was 1.83Mt, down 8.6 percent y-o-y.
IHS Markit reports that the UK manufacturing PMI fell to its lowest level since early 2013, coming in at 48.2 in July, down considerably from June’s 52.1 reading. The pre-Brexit optimism has turned into real pessimism, with sharp drops in production and new orders and the seventh straight monthly drop in employment which is in fact the sharpest drop in three-and-a-half years. The only bright light is a slight increase in intermediate and investment export orders. The UK produced 0.65Mt of crude steel in June, down 36.2 percent y-o-y.
IV. MANUFACTURING TALK RADIO
by Tim Grady
Manufacturing Talk Radio is covering an American travesty in the first of three shows about the use of the 13th Amendment to create 21st Century slave labor in America’s penal system. Not only is it an abuse of human rights, the labor pool is being used to manufacture goods for the federal government, some states and even private industry in direct conflict with small and middle market manufacturers.
While America pokes it’s finger in the eye of China pointing out their use of prisoners for slave labor, this is mostly to deflect attention away from America doing exactly the same thing – but on a larger scale through FPI (Federal Prison Industries) and UNICOR. New Jersey jumped on the bandwagon with their own version called DeptCor (Department of Corrections).
Hundreds of American manufacturers have lost hundreds of millions of dollars in work and jobs because they are not allowed to compete on many contracts, or are simply told that the contract they have now will be taken over by Unicor, Deptcor or one of the other state slave labor systems where inmates get paid as little as 16 cents an hour, or may not get paid at all, such as in Texas and Georgia.
Originally created under the guise of training inmates for jobs outside of prison, it has morphed into a for-profit contract grab, even using prisoners as scab workers at the expense of union jobs. However, the jobs the inmates are trained for, many of which are garment piecework, only exist today in Indonesia, China, Bangladesh, Malaysia and a few other Asian countries.
And while we have been touting the efforts of big corporations to return jobs to America, we were shocked to learn that some Corporate America titans gave those jobs to inmates at slave labor wages under the guise that they could boast of it being Made in America. While FPI and Unicor use the most flowery language to position this as a benevolent effort to ready inmates for life on the outside, their lobbying group works the halls of Congress for longer prison sentences and states to adopt the Three Strike Law – which 25 states have done.
And it goes deeper – but tune in to Manufacturing Talk Radio to get more of the details of a dark, dirty and devious story where each step leads the listener deeper into the muck and mire of ‘legal’ slavery under the 13th Amendment to the U.S. Constitution.
V. ASIA OUTLOOK
by Royce Lowe
CHINA produced 69.5Mt of crude steel in June, up 1.7 percent y-o-y; Japan 8.76Mt up 2.7 percent y-o-y; India 7.78Mt, up 3.9 percent y-o-y and South Korea 5.47Mt, down 6.7 percent y-o-y. Taiwan produced 1.75Mt in May, down 2.3 percent y-o-y.
The Caixin China manufacturing PMI jumped from June’s 48.6 to 50.6 in July, the first expansion since February 2015. There was renewed growth in production and new orders, thanks mostly to domestic demand. There was a solid increase in order backlogs, although employment continued to decline.
Total vehicle sales in China in June were at 2,070,700, with passenger car registrations at 1,784,100.
JAPAN’s manufacturing sector deterioration proceeded at a slower pace in July, with an increase in PMI to 49.3. – the highest reading since February – from June’s 48.1 reading. New export orders were down for the sixth consecutive month, due no doubt to some extent to the yen’s appreciation against the dollar. Some Japanese sources are blaming poor export performance on terrorism and ‘European economic demand weakness.’
The INDIAN manufacturing sector showed production and new orders growth at a four-month high in July, with both domestic and export orders on the up. Consumer goods orders are the driver.
The Nikkei PMI reading increased very slightly from June’s 51.7 to 51.8 in July.
There was no significant change in employment levels in July, but the rate of backlog accumulation was the fastest in eighteen months.
VI. SOUTH AMERICA
by Royce Lowe
In Brazil, the rates of contraction in new orders, production, employment and inventories all decreased in the month of July. The PMI for July, at 46.0, up from June’s 43.2 is still in contraction but is at a four-month high. Brazil’s crude steel production for the month of June was 2.54Mt, an 8.5 percent y-o-y decrease.
The JP Morgan Global Manufacturing PMI – a composite index produced by JPMorgan and Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – increased in July to 51.0 from June’s 50.4 reading.
The growth rate of the global manufacturing sector improved at the start of the third quarter, with production and new orders on the up and a slight increase in employment for the first time in six months. There was also a further build up of work backlogs.
There was good news from North America and the eurozone, and Asia struggled over the 50 line with China returning to growth. Increases were seen in India, Taiwan, South Korea and Vietnam, which offset contraction in Japan, Indonesia and Malaysia. All indices were up.
VII. FORGING AND CASTING
by Royce Lowe
Japan Aeroforge, a joint venture established in January 2011 by Kobe Steel, Hitachi Metals Ltd. and several other companies, has begun mass production of large forged-titanium parts for France’s Safran Landing Systems, a leader in aircraft landing and braking systems. The forged parts are used in the landing gears of Airbus A350 XWB planes. Japan Aeroforge is in charge of the forging process, while Kobe Steel is responsible for product process planning, quality assurance and other processes. Japan Aeroforge manufactures large titanium forgings used in aerospace applications on a 50,000-ton hydraulic forging press, one of the largest in the world.
Consolidated Precision Products Corp. (CPP), a holding company headquartered in Cleveland, has operations specializing in cast parts and assemblies for commercial and defense aircraft construction. It recently purchased two metalcasting operations from Pratt and Whitney Rzeszow S.S. a business unit of Pratt and Whitney Canada located in southeast Poland. CPP has 19 casting and finishing plants for aluminum, magnesium, steel and super alloys. It has seven foundries in California, one in Minnesota, and two in France, together with foundries in Belgium, Mexico and Slovakia. Its customer list includes all major aircraft OEMs and aircraft engine manufacturers.
The University of Sheffield (UK) Advanced Manufacturing Research Center, with Boeing, is a world-class center for advanced machining and materials research for aerospace and other high-value manufacturing sectors. The center has a new foundry, with two induction furnaces with a combined capacity of 2.8 tonnes, and will cast parts to 1.3 tonnes. The center will develop new casting technologies and will provide design and manufacturing consultancy services for aerospace and other high-value manufacturing sectors.
VIII. MAINTAINING A PACE ABOVE STALL SPEED: JULY 2016 BUSINESS SURVEY INSIGHTS
by Norbert Ore
Our look each month at global business surveys is intended to provide timely and credible insight into the global economy. Change is the driver for our analysis and the concept is quite simple. Is this month better than last month?
Of late, remarkably, there has been little change to assess, though the change that we do see is trending in a positive direction. While global economies are still considered to be under performing, 12 of the 17 (same as June) surveys that we follow are growing at an average PMI of 51.6 and higher than the June average of 51.3 percent.
The JP Morgan Chase Global PMI (51.0, +0.6) which measures over 30 countries indicates that July provides little change from June, but returns to the mid-point of the past 12 months. In the aftermath of the Brexit, UK (48.2, -4.2) manufacturing dropped to its lowest level since February 2013. The sector has averaged only 51 for the first half of 2016.
Our sense is that there had to be some inventory accumulation as supply insurance prior to the vote and then a degree of liquidation afterward. We continue to believe that buyers and sellers will continue traditional relationships and a weaker pound will facilitate such arrangements.
The Eurozone PMI (52.0, -0.8) is now in its 37th consecutive month of growth and showing a slight deceleration. Germany (53.8, -0.7) posted its 20th consecutive month of growth and its second highest reading since April 2014. The remaining seven Eurozone countries were led by Austria (53.4, -1.1), while France (48.6 +0.3) failed to grow. The Republic of Ireland (50.2, -2.8) also saw minute expansion as its PMI indicated little change from June.
Taiwan’s SMIT/CIER (54.2, +0.9) marked a fifth month of strong growth while Japan (49.3, +1.2) recorded a fifth month of contraction. China’s Official Report, the CFLP PMI (49.9, -0.1), has averaged 49.9 for the past 18 months. The Caixin China General Manufacturing PMI (50.6, +2.0) rose above the mid-point for the first time in 16 months. Of the two China surveys, the Caixin shows more variability and a recent slowly developing upward trend from the 47.2 reading that it hit in October 2015, while the CFLP survey has been flat.
In North America, Canada (51.9, +0.1) reported above 50 for the fifth month following a seven-month contraction. Mexico (50.6, -0.5) dropped to its lowest level in 33 months with a below 50 reading in New Export Orders declining for the first time since October 2014.
IX. THE SKILLS GAP, EMPLOYMENT, AND ASSOCIATED
by Royce Lowe
The computers on wheels that are today’s automobiles are causing somewhat of a dilemma when it comes to servicing. The grease monkey of days past – a rather derogatory term in itself – is just not qualified to handle cars with up to fifty computers in them, so community colleges and auto dealerships are getting together to turn out technicians who can handle the high-tech autos. And it seems to work, as in the case of the Central Florida Auto Dealers Association (CFADA), where the association has built its own tech-training center at a local community college. Toyota is strongly into the idea, and recognizes the fact that what is being done is a start, but there will be an ongoing, increasing need for more and more service technicians. Mercedes is also into the idea, and we can only imagine the caliber of service technician they’ll be looking for.
Brand Ambassadors – it seems that teachers in certain school districts who are parents are effectively no more engaged than parents in promoting their school system in the community. Hence good teachers are not encouraged to seek employment in a particular district.
We read and hear a lot these days about robots and people working with robots and how the one complements the other. In fact, pretty soon we’ll be figuring we can’t have one without the other.
Ford assembly-line staff in Europe are working hand-in-hand with collaborative robots (co-bots) to fit shock absorbers to Fiesta cars. The job requires pinpoint accuracy, strength and dexterity, and the co-bots ensure a perfect fit and relieve the workers from having to access hard-to-reach places.
This is a trial at the moment in Cologne, Germany, and part of what Ford calls Industry 4.0, the fourth industrial revolution involving automation, data exchange and manufacturing technologies. Ford says it is at the forefront among automakers in the development of the new, closely integrated approach to humans and robots working together on an assembly line.
Ford of Europe, in fact, obtained feedback from over 1,000 production-line workers to identify tasks best suited for the new robots that come with their human-like hand.
Workers use robots to lift and automatically position the shock absorber into the wheel arch, before pushing a button to complete the installation. High-tech sensors stop the co-bots if they detect even a finger in their path. Ford is looking at co-bots to perform more ordinary tasks, from shaking hands (??) to making coffee.
by Royce Lowe
FCA will spend $700 million in Toledo,OH and $350 million in Belvidere, ILL, with 1,000 attendant new jobs, to produce a pair of Jeep SUVs. The Jeep has been the driver in FCA’s steady increase in U.S. sales, accounting for 41 percent of first-half sales.
The company will also spend $1.48 billion on its Sterling Heights plant, where it will shift from production of the Chrysler 200 to the Ram 1500, starting this coming December. The Ram 1500 may be ‘reimagined’ as an SUV to meet the increased demand for that kind of vehicle.
TESLA, never out of the news these days, is now talking of a ‘Masterplan’ involving big trucks, solar charging and ride sharing. Meanwhile the Autopilot story is still up front, with the news that the deceased driver whose Autopilot apparently failed to function was doing 74m.p.h. in a 65 max zone. And it turns out that Tesla’s Autopilot does not require the driver to have hands on the wheel, whereas similar systems from Mercedes and Volvo DO require hands on wheel. This thanks to legal advice. GM is throwing in its ten cent’s worth, saying that autonomous vehicles are a safer mode of transport and that the technology will arrive more quickly than people expect, that it will just ‘creep up on us.’
A safer mode of transport would be most welcome. Figures show that 100 people per day are killed on U.S. roads, and that 6,000 people per day are injured to the point where they need to visit a hospital.
To summarize the electric vehicle (EV) news, and there’s a lot of it:
Mercedes-Benz is looking to come out with an electric, heavy-duty truck in about five years, Tesla maybe next year.
IHS Markit says sales of electric models might account for 4 percent of EU and U.S. medium-and heavy-duty truck sales by 2025.
It’s mostly all about the batteries. VW is looking to start its own battery plant – if it can withstand the multibillion dollar bludgeoning to its reputation and bottom line, although it is squeezing all its suppliers for massive cost reductions to offset the hit VW will take; now, that is truly passing the buck!
Porsche is looking to come out with its first battery-powered sports car in 2019. $1.1 billion, 1,400 workers, 15,000 per year, 300 mile range between charges, and 0-60 m.p.h. in 3.5 seconds, 0-120 m.p.h. in 12 seconds (though you’d need to be on an Autobahn to do that), top speed 150 m.p.h.
Jaguar Land Rover will continue with plans to build a new, $1.32 billion plant in Nitra, Slovakia, to produce 150,000 vehicles per annum and create up to 2,800 jobs, with first production in late 2018. Spain’s Gestamp plans a €100 million stamping plant, right next door, to produce steel and aluminum parts.
by Royce Lowe
The F-35 aircraft, in development for over a decade, is now in testing and training by the U.S. Marine Corps. The Defense Department has forwarded $559.5 million to Lockheed Martin Corp. for assembly and $1.5 billion to Pratt and Whitney for 99 new F-135 engines. The project is embarrassingly over budget.
At this year’s Farnborough International Air Show in the UK, both Boeing and Airbus came away with substantial orders for narrow-body jets from budget airlines in Asia, for a total haul of about $23 billion, the lion’s share going to Airbus. Airbus and Virgin Atlantic are closing on a deal for Airbus’s A350 model.
Alcoa has a new plant at its research center near Pittsburgh where it will manufacture metal powders in proprietary grades of titanium, nickel and aluminum, to be used in its 3D-printing operations in California, Georgia, Michigan, pennsylvania and Texas. This is all part of a $60 million program announced last fall to expand and develop capabilities for 3D-printing of aerospace parts. The company will be a leader in additive manufacturing, with emphasis on metal powders as the critical input material, aimed particularly at the aerospace industry as well as other growth markets.
XII. THE MANUFACTURING SCENE: MANUFACTURING NEEDS A BIT OF A KICK
by Royce Lowe
The U.S. manufacturing economy, which has seen serious losses in employment over the past 25 years, would be the world’s ninth largest economy, according to the National Manufacturer’s Association.
A recent survey by Industry Week Custom Research and Kronos Incorporated, polling 153 mostly senior executives and managers, concludes that manufacturing leaders are overwhelmingly positive about prospects for business growth and that nine of ten expect an increase, with over 50 percent looking for growth of 5 percent per year or more over the next five years.
There are challenges to all this, such as market volatility, rising material costs, pressures to reduce selling prices and increasing labor costs. As such, production processes must be improved, customer relationships must be strengthened and people with appropriate skills and experience must be brought on board and trained accordingly. Quality management and innovation must be brought up to scratch: 45 percent of manufacturers have not yet set specific goals for reducing new product development cycle times.
Employment growth expectations over the next five years are:
Decrease by 1-5 percent 10 percent of those surveyed
No change 20 percent of those surveyed
Increase 1-5 percent 31 percent of those surveyed
Increase 6-10 percent 16 percent of those surveyed
Increase > 10 percent 23 percent of those surveyed
The Brookings Institution has recently published a report entitled: America’s Advanced Industries: New Trends in which they look at the present status of this sector. They conclude that the sector is in reasonable condition, going forward with some slowdown, and that the majority of its growth, over 60 percent, is coming from the automotive and technology industries.
Eighty-five of the 100 largest metropolitan areas saw at least some positive change in the number of local jobs in advanced industries, with 38 percent increasing by at least 3% since 2013, and 16 percent increasing by at least 5%.
The paper, which is a very long read, and can be accessed at https://www.brookings.edu/research/americas-advanced-industries-new-trends/ points to the need for improved innovation, training, labor standards and a metro-by-metro ‘rejuvenation’ of the country’s high-tech advanced industries sector.
What are advanced industries? According to Brookings they are ‘those in which R&D spending per worker rates among the top 20% of industries and the share of workers with a high level of STEM – Science, Technology, Engineering and Mathematics – knowledge exceeds the national average.’
Advanced industries utilize new technology including robotics, machine learning and genomics, and in fact contribute to the further development of these technological advances. Advanced industries generate 60 percent of U.S. exports and pay well, with an average salary of $95,000 in 2015, a 68% increase over 1975, adjusted for inflation, compared to a 25% increase outside the sector.
For every new advanced industry job, 2.2 additional jobs are created in the economy. But the sector has slowed since 2013, due to a strong dollar and a major slowing of global demand for U.S. commodity and machinery exports.
The bottom line appears to be a need for innovation and training.
XIII. TECHIE CORNER
by Royce Lowe
Norway-based Norsk Titanium (NTi) produces aerospace structures using Rapid Plasma Deposition ™ (RPD), where titanium wire is melted by argon-shrouded plasma torches to form near-net-shape parts. The company is developing a plant in Plattsburgh, NY, scheduled to start in late 2017. NTi has a contract from Boeing to supply 3D-printed titanium engineering test articles for commercial aircraft structural components (few contract details are available.)
NTi will produce Ti-6Al-4V preforms for delivery to Boeing for further testing and evaluation. The project is effectively to demonstrate part-to-part repeatability and to optimize the operations processes necessary to enter into long-term production of structural components for commercial aircraft – according to NTi.
N.Y. State will contribute $125 million to the project. The parts are to replace forgings. Twenty NTi patented MERKE IV RPD printers with a combined 400 tonnes per year capacity of aerospace structural parts will initially be installed, with plans to eventually double this.
In 2015 NTi supplied parts to Airbus’s subsidiary, Premium Aerotech – in Ti-6Al-4V – and finish machining was performed with excellent results.
XIV. OTHER NEW NEWS
by Royce Lowe
Tata is looking at the possibility of a joint venture with ThyssenKrupp for its European operation, instead of selling off its UK businesses. The Port Talbot flat-rolled operation attracted seven bids from the industry, but four have pulled out because of Brexit uncertainty. Port Talbot is in Wales, and Wales voted heavily to leave the EU. This is a political hot potato and a hole-in-the head for the UK’s new government, which is reported to be willing to put money into any deal and to save the company pension fund.
XV. THE FINAL WORD
by Royce Lowe
Certain minority factions of the human race continue to display varying degrees of hatred and aggressiveness, while the vast majority of us are coming to terms with certain events as the ‘new normal,’ somewhat like the price of oil.
The global manufacturing economies, led by the U.S. and the eurozone, saw good results in the month of July. Things look somewhat better in Asia too, but we will await results for the next few months before getting too excited.
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