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Metals & Manufacturing Outlook – September 2016
I. Cover Story: THIS WAS AN UP AND DOWN, ROUNDAND ROUND MONTH
II. NORTH AMERICAN PERSPECTIVE
IV. MANUFACTURING TALK RADIO
V. ASIA OUTLOOK
VI. SOUTH AMERICA
VII. FORGING AND CASTING
VIII. BUSINESS SURVEY INSIGHTS
IX. THE SKILLS GAP
XII. THE MANUFACTURING SCENE
XIII. TECHIE CORNER
XIV. OTHER NEW NEWS
XV. THE FINAL WORD
So, here we are in September and nothing has changed much. A recent survey by CNN of working American’s mirrors the statements by employers across the country: America is in the doldrums.
It is surprising what a substantial difference there is between a 2.0 GDP and a 3.0 GDP. At 3.0, things are hopping; at 2.0, things are sluggish. At 1.0, things are stagnant. Most of the forecasts for 2016 are a GDP between 1.8 and 2.1 – sluggish. For 2017 and 2018, the projections are about the same, around 2. So far for 2016 we are at 0.8 for Q1 and 1.1 for Q2 – stagnant.
The problem? Any problem could cause the GDP to dip lower, and little is pointing to a higher GDP. Reason(s)? Consumer debt remains high – there is very little room for discretionary spending. Manufacturing is investing in short-term ROI projects like new technology, not long term projects like new equipment even though some plant construction is up. Some of that space may remain idle unless the economy picks up.
What is everyone waiting for? The election – lots of people are hoping that the outcome will trigger economic growth. The challenge? The country is mired in what will soon be $20 trillion in debt, or 120% of total GDP – not seen since World War II. And, there is no plan to work down the debt – just more talk of more federal spending. Where is that money going to come from? Your pocket!
Our clinically grossly obese government needs to go on a diet and shed debt, and probably some employees, too. Blindly going forward into $30 trillion in debt is a fools errand, but NO politicians are talking about ways to reduce spending. No one likes to hear about spending cuts or cuts to the government workforce.
What is the Fed to do? Raise rates? That will also increase the debt service cost, just like the rate going up on your credit card. Less goes to principal, more goes to interest, and the payoff stretches way off into the future. Raising rates is the way the government heads off inflation; they haven’t raise rates because their read is that the economy is weak and inflation is almost non-existent – unless you happen to include food, education, health care and housing – which they apparently don’t.
If the government cuts corporate tax rates, where will they get the money to pay their bills, pay the debt service, and pay down this national travesty? Your pocket! Expect personal income taxes to raise regardless of who gets elected – they will lie and tell you that won’t happen, but it will. It is either cut spending, shed debt, and reduce federal employee head count, or raise taxes on taxpayers. We would like to see them do the former before they do the latter, but there is no evidence they will cut their own throats or turn down the tap on the spending flow in Washington D.C.
If personal income taxes go up, the GDP goes down. Discretionary spending will drop and since consumers drive 70% of our nation’s economy, personal spending will decline because you won’t have it to spend anymore. So, people feel the country is headed in the wrong direction.
Manufacturers share the pain – laws, rules, regulations and policies coming out of every department and federal agency continue to dump some new and often ridiculous compliance issues the Utopians in Congress conjured up. How will companies pay for it? Eliminate a job or two – the minimum compliance cost across all businesses is now estimated at $35,000 a year for small businesses on up to over 100 fold that for major corporations, and it is rising.
All this won’t end well for America. The General Accounting Office, the Congressional Budget Office, Moody’s, Standard & Poor’s, and Fitch Ratings all agree that a $30 trillion national debt is not sustainable – it means the USA goes bankrupt like Russia did.
The bottom line? The days of boom/bust economic cycles may be gone forever. They were fuelled by debt: credit cards in the 80’s, home equity lines of credit in the 90’s, easy home mortgages in the 2000’s – there aren’t any other consumer debt instruments to drive the next boom and the government is out of gas, but they run deficits every year anyways. So the likely scenario for the foreseeable future are modest economic ups and downs instead of big waves we ride until they crash and we all tumble inside them. Put away your surfboard and get out your floaties – it’s going to be a dull day at the beach.
Lewis A. Weiss
I. COVER STORY: THIS WAS AN UP AND DOWN, ROUND AND ROUND MONTH
Brexit-bound Britain sees its August manufacturing performance rebound and then some.
U.S. car and light truck sales drop over 4 percent y-o-y, Canada’s light vehicle sales drop 2 percent y-o-y and Western Europe car sales increase 8 percent y-o-y.
FCA sales executive found fudging figures. Sales weren’t what they were said to be. This will be an ongoing story as the U.S. Department of Justice is on the case.
The U.S. created 151,000 non-farm jobs in August. This was less than the estimated 180,000 jobs increase, but together with June and July’s figures which were over expectations, gave an average increase over the past three months of 232,000.
Meanwhile the Reshoring Initiative estimates that 265,000 jobs were brought back to the U.S. between January 2010 and July 2016. The reasons for the job return is said to be government incentives, ecosystems/localization, proximity to customers and availability of a skilled workforce.
Thanks to anti-dumping measures against a good number of countries, particularly China, the U.S. is seeing its steel prices holding up. A coincident reduction in demand from the manufacturing sector sees the start of a domestic price war. China exported 67.4 million tons of steel in the first seven months of 2016, a record for the period. Along with steel the U.S. aluminum industry is also crying for help. See XIV. Other New News.
It is reported that orders for U.S. capital equipment recently rose by the most since January. There was a pickup in July, for the second consecutive month, in non-military bookings, excluding aircraft, of 1.6 percent, exceeding even the most optimistic forecast in a recent Bloomberg survey, and representing the first back-to-back increase since January 2015.
U.S. Construction coming back. See section XIV. Other New News.
The ISM PMI figure for U.S. manufacturing moved back into contraction in the month of August to 49.4 percent from July’s 52.6 percent, following five months of growth in manufacturing. The overall economy grew for the 87th consecutive month. Economic forecasts had predicted a PMI for August from 50.7 to 53.4. See North American Perspective for details.
The IHS Markit PMI for the U.S. manufacturing sector eased back to 52.0 percent in August from July’s 52.9 reading. Markit’s August data pointed to a further moderate upturn in conditions across the U.S. manufacturing sector, but the overall pace of improvement was slower than in July amid weaker increases in new orders and employment. Inventories are down for the third consecutive month.
The five ISM components are equally weighted at 20 percent each. The IHS Markit components are weighted: 30 percent New Orders, 25 percent Production, 20 percent Employment, 15 percent Supplier Deliveries and 10 percent Raw Materials Inventories.
Manufacturers said production volumes were up with the pace of expansion the joint-fastest since November 2015, and new export orders rising at the strongest pace since September 2014. Through all this there is talk of an underlying weak domestic demand and a possible temporary negative effect of the U.S. election campaign.
The Bureau of Economic Analysis came out with its ‘second’ estimate for the annual rate of Real GDP growth in the second quarter of 2016, putting it at 1.1 percent. The figure for the first quarter was 0.8 percent.
GALLUP’s U.S. Economic Confidence Index was at -11 in early September, with the coincident job creation index at +33.
World crude steel production for the 66 reporting countries for the month of July 2016 was 133.74Mt, 1.4 percent up y-o-y.
U.S. crude steel production, for July 2016 was 6.88Mt, down 2.2 percent y-o-y.
Primary Global Aluminum Production in July 2016 was reported at 4.897 million tonnes, of which 2.659 million tonnes, over 54 percent, was produced in China. The Gulf Corporation Council (GCC) produced 437,000 tonnes, North America 336,000 tonnes, Western Europe 315,000 tonnes and Eastern and Central Europe 335,000 tonnes.
Here are the latest figures for US new car and light truck sales for ‘The Big 8’ for August 2016. It will be noted that all of the big eight’s sales were down for August, with lower car sales responsible for the overall drop.
|The ‘Big Eight’||August ’16||August ’15||YTD % change|
|Total new cars and light trucks||1512556||
Total cars 600,983 687,998 -12.6
Total l/trucks 911,573 889,409 2.5
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||+1.2 (qtr)||-0.5 (July)||+0.8 (July)||4.9 (July)|
|Canada||+2.4 (qtr)||-2.8 (May)||+1.3 (July)||6.9 (July)|
|China||+7.4 (qtr)||+6.0 (July)||+1.8 (July)||4.1 (Qtr 2)|
|Japan||+0.2 (qtr)||-1.5 (June)||-0.5 (June)||3.1 (June)|
|+0.6 (July)||4.9 (May)|
|Euro Area||+1.1 (qtr)||+0.4 (June)||+0.2 (July)||10.1 (June)|
|France||-0.2 (qtr)||-1.3 (June)||+0.2 (July)||9.9 (June)|
|Germany||+1.7 (qtr)||+0.5 (June)||+0.4 (July)||6.1 (July)|
|Italy||nil (qtr)||-1.0 (June)||-0.1 (July)||11.6 (June)|
|Spain||+2.8 (qtr)||+1.0 (June)||-0.6 (July)||19.9 (June)|
|India||+9.6 (qtr)||+2.1 (June)||+6.1 (July)||4.9 (2013)|
|Brazil||– 1.1 (qtr)||-5.9 (June)||+8.7 (July)||11.3 (June)|
|Taiwan||+ 0.2 (qtr)||-0.3 (July)||+1.2 (July)||4.0 (July)|
|Mexico||– 0.7 (qtr)||+0.6 (June)||
II NORTH AMERICAN PERSPECTIVE
by Royce Lowe
The Institute of Supply Management PMI figure registered 49.4 percent in August, off 3.2 percentage points from July’s 52.6 reading, representing contraction in manufacturing following five months of growth. There was growth in the overall economy for the 87th consecutive month.
ISM PMI for the past 90 days
Six of the 18 manufacturing industries reported growth in August in the following order: Printing & Related Support Activities; Nonmetallic Mineral Products; Computer & Electronic Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; and Chemical Products. The 11 industries reporting contraction in August, listed in order are: Electrical Equipment, Appliances & Components; Apparel, Leather & Allied Products; Plastics & Rubber Products; Furniture & Related Products; Transportation Equipment; Machinery; Textile Mills; Paper Products; Petroleum & Coal Products; Primary Metals; and Fabricated Metal Products.
Despite the rather significant easing of the PMI figure in August, there were still some very positive comments from the industry. Albeit, Chemical Products, Computer & Electronic Products and Transportation Equipment spoke of flat conditions. On the other hand, there was positive feedback from Nonmetallic Mineral Products, Fabricated Metal products, Food, Beverage & Tobacco Products, Machinery and Miscellaneous Manufacturing. A respondent from Plastics & Rubber Products was concerned with the difficulty in finding suitable employees, and from a Petroleum & Coal Products respondent we heard of a rig count slowly increasing.
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.
The New Orders Index took a tumble in August to 49.1 percent down 7.8 percent from July’s 56.9 percent reading. This is the first time this index has been in contraction since February this year. Growth was noted in six industries, including Computer & Electronic Products; Miscellaneous Manufacturing; Chemical Products; and Fabricated Metal Products. Nine industries reported a decrease in new orders during August, including: Transportation Equipment; Plastics & Rubber Products; Machinery; Primary Metals; and Paper Products.
The Production Index also slipped into contraction territory in August, and at 49.6 percent or 5.8 percentage points below July’s 55.4 reading, represented the lowest figure since August 2012, when this index registered 49.5 percent. Growth was noted in eight of the eighteen industries, including Chemical Products; Primary Metals; Computer & Electronic Products; and Fabricated Metal Products; The eight industries reporting a decrease in production during August include Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Transportation Equipment; Machinery; and Paper Products.
Employment fell 1.1 percentage points in August with the index at 48.3, down from July’s 49.4 reading, representing contraction in employment for the second consecutive month. Employment growth was reported in five industries in August, namely Printing & Related Support Activities; Paper Products; Primary Metals; Computer & Electronic Products; and Nonmetallic Mineral Products. The nine industries reporting a decrease in employment in August include Transportation Equipment; Plastics & Rubber Products; Petroleum & Coal Products; Machinery; Chemical Products; and Textile Mills.
The delivery performance of suppliers to manufacturers was slower in August as the index registered 50.9 percent, or 0.9 percentage points lower than July’s 51.8 reading. Six industries reported slower supplier deliveries in August namely Nonmetallic Mineral Products; Transportation Equipment; Miscellaneous Manufacturing; Machinery; Food, Beverage & Tobacco Products; and Chemical Products. The four industries reporting faster supplier deliveries in August are: Paper Products; Primary Metals; Plastics & Rubber Products; and Fabricated Metal Products. Eight industries reported no change in supplier deliveries in August compared to July.
Raw Materials Inventories contracted for the 14th consecutive month in August as the Inventories Index decreased slightly to 49.0 percent from July’s 49.5 reading. Four industries reported higher inventories in August namely Wood Products; Apparel, Leather & Allied Products; Transportation Equipment; and Nonmetallic Mineral Products. The 11 industries reporting lower inventories in August include Textile Mills; Chemical Products; Fabricated Metal Products; Primary Metals; Computer & Electronic Products; Machinery; 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 49.5 percent in August, or 1.5 percentage points below July’s 51.0 reading, meaning that customers’ inventories are considered to be too low in August, having been considered to be too high for three previous consecutive months. Five manufacturing industries reported customers’ inventories as being too high during the month of August, namely Petroleum & Coal Products; Furniture & Related Products; Transportation Equipment; Machinery; and Plastics & Rubber Products. The eight industries reporting customers’ inventories as too low during August include Primary Metals; Paper Products; Food, Beverage & Tobacco Products; Chemical Products; and Fabricated Metal Products.
The ISM Prices Index registered 53.0 percent in August, which is 2.0 percentage points lower than July’s 55.0 percent reading, indicating an increase in raw material prices for the sixth consecutive month. In August 19 percent of respondents reported paying higher prices, 13 percent lower and 68 percent the same prices as in July. Of the 18 manufacturing industries, the nine industries that reported paying increased prices for its raw materials in August are: Apparel, Leather & Allied Products; Plastics & Rubber Products; Transportation Equipment; Petroleum & Coal Products; Machinery; Computer & Electronic Products; Chemical Products; Fabricated Metal Products; and Nonmetallic Mineral Products. The three industries reporting paying lower prices during the month of August are: Electrical Equipment, Appliances & Components; Furniture & Related Products; and Food, Beverage & Tobacco Products. Six industries listed no change in prices in August compared to July.
Up in Price in August were:
Caustic Soda; Copper (2); Gold (2); Nickel; Plastic Resins; Propylene; Stainless Steel (5); Steel* (8); and Titanium Dioxide.
Commodities Down in Price
Corn (2); Corrugate (2); Diesel; Scrap Steel; Steel* (2); Steel — Cold Rolled; and Steel — Hot Rolled.
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 45.5 percent in August, 2.5 percentage points down on the July reading of 48.0 percent, indicating contraction in order backlogs for the second consecutive month. Of the 88 percent of respondents who measured their backlogs, 18 percent reported greater backlogs, 27 percent smaller backlogs and 55 percent no change from July. The four industries reporting growth in order backlogs in August are: Printing & Related Support Activities; Petroleum & Coal Products; Computer & Electronic Products; and Fabricated Metal Products. The 12 industries reporting a decrease in order backlogs during August include Transportation Equipment; Primary Metals; Paper Products; Machinery; Plastics & Rubber Products; and Chemical Products.
The ISM New Export Orders Index was at 52.5 percent for August, unchanged from July’s reading and representing growth in new export orders for the sixth consecutive month. The eight industries reporting growth in new export orders in August are: Wood Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Chemical Products; Computer & Electronic Products; Fabricated Metal Products; Machinery; and Paper Products. The six industries reporting a decrease in new export orders during August are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Furniture & Related Products; Primary Metals; Plastics & Rubber Products; and Transportation Equipment.
The ISM Imports Index is at 47.0 percent in August, five percentage points lower than July’s reading of 52.0 percent, representing a decrease in imports after four months of an imports index of 50.0 or above. The four industries reporting growth in imports during the month of August are: Furniture & Related Products; Computer & Electronic Products; Food, Beverage & Tobacco Products; and Machinery. The nine industries reporting a decrease in imports during August are: Nonmetallic Mineral Products; Apparel, Leather & Allied Products; Textile Mills; Primary Metals; Plastics & Rubber Products; Paper Products; Transportation Equipment; Miscellaneous Manufacturing; and Fabricated Metal Products.
CANADA’S IHS Markit Manufacturing PMI decreased to 51.1 in August from July’s 51.9 reading, with a renewed slowdown in production and new order growth in the Canadian manufacturing sector.
August saw the slowest rise in production levels for six months, along with a further drop in export sales and a slower pace of employment growth.
All regions showed an increase in manufacturing production, with Ontario the best. Alberta and B.C. showed the slowest fall in manufacturing production for just over 18 months.
Canada produced 1.14 Mt of crude steel in July, up 3.5 percent y-o-y. Canada’s light vehicle sales were off 2 percent y-o-y at 172,277 units in August, due mostly to significant sales reductions by GM and FCA/Chrysler. Sales for the first eight months of 2016 were up 3.8 percent at 1,337,504 units.
MEXICO’s PMI increased slightly to 50.9 from July’s 33-month low reading of 50.6. The month saw a slight fall in production but a solid increase in new orders and a continuing growth, for the 25th consecutive month. in employment. There was a sharp drop in backlog. Mexico produced 1.65Mt of crude steel in July, up 8.8 percent y-o-y.
by Royce Lowe
IHS Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for August, at 51.7 was down from July’s 52.0 reading, as some growth momentum was lost in August, with expansion rates slowing for production and new orders, both domestic and export. The PMI has grown for 38 consecutive months.
Job creation in the Eurozone was the weakest since March, but the outlook remains ‘mildly positive’ as backlogs increased at the fastest pace in two-and-a -half years. Germany and the Netherlands are leading the Eurozone pack.
|Germany||53.6 (53.8)||3-month low|
|Netherlands||53.5 (53.2)||5-month high|
|Austria||52.1 (53.4)||3-month low|
|Ireland||51.7 (50.2)||2-month high|
|Greece||50.4 (50.4)||2-month high|
|Italy||49.8 (51.2)||20-month low|
|France||48.3 (48.3)||2-month low|
There was an extra selling day for cars in Europe in August and passenger car sales were up significantly, by 8.1 percent, with 765,383 cars sold in Western Europe, including the UK. Germany was up 8.3 percent, as VW’s sales moved from a 13 percent drop in July to a 16 percent hike in August, while France went up 6.7 percent, Italy 20 percent, Spain 15 percent and the UK 3.3 percent.
Crude steel production in Germany in July was at 3.39Mt, down 6.1 percent y-o-y; in Italy 2.05Mt, up 6.2 percent y-o-y; in France 1.15Mt, down 4.7 percent y-o-y and in Spain 0.84Mt, down 13.0 percent y-o-y.
Russia’s crude steel production for July was at 6.13Mt, up 0.9 percent y-o-y; Ukraine’s was 2.06Mt, up 10.5 percent y-o-y.
IHS Markit reports a rebound in the UK manufacturing PMI from July’s three-year low level of 48.2 to a 10-month high in August of 53.3. Trends in new orders and production were definitely on the up, with a weaker Sterling good for export orders, as witnessed by increased sales to North America, Europe, China, South-East Asia, the Middle-East and Norway. Employment was up for the first time in the year-to-date. The UK produced 0.66Mt of crude steel in June, down 27.3 percent y-o-y.
IV. MANUFACTURING TALK RADIO – TELLING THE STORY BEHIND THE SOUNDBITES
by Tim Grady
Manufacturing Talk Radio has been doing deep dives into subjects that only get sound bites on main stream media. While the narrowest definition of manufacturing as a percentage of GDP is 11-12%, the impact of manufacturing is far greater. Various organizations that measure the multiplier effect gauge it between $1.40 and $1.80 that is generated for every $1.00 in manufacturing. That would make manufacturing from 25-33% of GDP. For example, what would retail sell without manufacturing? How would one construct homes or buildings without manufacturing? One might argue that mining and construction belong in manufacturing, but that’s a discussion for another day.
We encourage readers to look through the “Tags” at www.mfgtalkradio.com and listen to shows relevant to their business or industry. With over 150 shows in the library and guests from business, industry, state and federal governments, academia, associations and organizations, there will be several topics listeners will find useful.
V. ASIA OUTLOOK
by Royce Lowe
CHINA produced 66.8Mt of crude steel in July, up 2.6 percent y-o-y; Japan 8.87Mt up 0.5 percent y-o-y; India 8.08Mt, up 8.1 percent y-o-y and South Korea 6.01Mt, up 1.5 percent y-o-y. Taiwan produced 1.89Mt in July, up 4.0 percent y-o-y.
The Caixin China manufacturing PMI dropped from July’s 50.6 to 50.0 in August, effectively into stagnation. Production and total new orders both rose at slower rates than in July, and export sales continued to decline. Employment contracted in August, albeit at the slowest rate to date in 2016.
Figures from the Chinese Association of Automobile Manufacturers (CAAM) say that passenger car sales were up 26.3 percent y-o-y in July at 1.6 million units. A government policy halved the sales tax on cars with a less than 1.6 liter motor and sales of these cars were up 38.6 percent y-o-y to 1.14 million in July, some 71 percent of total sales. Sales for cars for the first seven months of 2016 are up 11 percent to 12.64 million units, with combined sales of cars and commercial vehicles up 9.84 percent to 14.68 million units.
JAPAN’s manufacturing PMI increased from July’s 49.3 to 49.5 in August, the highest reading since February. The downturn in the manufacturing sector was at a weaker pace, with production picking up for the first time since February. New orders, both domestic and export, declined at the slowest rate in six months.
The INDIAN manufacturing sector’s PMI rose to a 13-month high of 52.6 in August, from July’s 51.8 figure. The month saw stronger growth in new orders – both domestic and export – and production. New orders increased at the fastest pace since December 2014, with consumer goods leading, but with solid growth in the intermediate and investment categories.
VI. SOUTH AMERICA
by Royce Lowe
In Brazil, the rate of contraction in new orders accelerates. Production decreases at a weaker pace and there are further reductions in employment. The PMI for August, at 45.7, down from July’s 46.0, represents the 19th consecutive month the PMI has been below the 50 mark.
Dilma Rousseff has been impeached and the Vice-President Michel Temer, who has been at the helm since May, will serve out the 28-month balance of Rousseff’s term. Needless to say, Mr. Temer has resolved to do something about the economy.
Brazil’s crude steel production for the month of July was 2.70Mt, a 6.0 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) – decreased slightly in August to 50.8 from July’s 51.0 reading.
North America and Europe were the driving forces in the overall moderate expansion seen in August. Japan, South Korea, Malaysia, Thailand and Myanmar contracted while China stagnated. There was expansion in Taiwan, India, Indonesia, Vietnam and the Philippines.
The pace of increase slowed in the Eurozone while the UK rebounded sharply from July’s downturn. Global manufacturing saw the sharpest production increase in consumer goods, with modest expansion in intermediate and investment goods. New order growth was slower than in July and there was a marginal reduction in global manufacturing employment, with job creation slowing sharply in the U.S., easing in the Eurozone, stagnating in Japan and falling in China. The UK saw increases in employment, as did South Korea, Taiwan, India, Canada, Mexico, Turkey, Vietnam, the Philippines, Poland and the Czech Republic.
The big concern at the moment seems to be the level of new orders.
VII. FORGING AND CASTING
by Royce Lowe
Britain’s Sheffield Forgemasters International Ltd. has a new $30-million award from the U.S. Dept. of Defense to supply steel castings as part of the Columbia-class submarine program. The Columbia-class will be a series of nuclear-powered vessels in line to replace the current Ohio-class ballistic missile submarine, which is a critical element of the U.S. nuclear missile defense strategy.
Few details of the contract are available, but it is speculated that the castings will form part of the subs’ nuclear-missile launch system.
Ellwood Texas Forge Navasota (ETFN) made its first production shipment of 15-5PH flap-track forgings for the 737 program to the Boeing Portland (Oregon) fabrication facility. Ellwood and Boeing concluded negotiations on a new multi-year contract in May 2015 and shortly after began the qualification processes and testing required. ETFN is one of two closed-die forging companies owned by Ellwood Group Inc. of Ellwood City, Pa. Located in southeast Texas, ETFN uses conventional hammers, computer-controlled counterblow hammers and computer-controlled presses to manufacture near-net closed-die forgings in carbon, alloy, and stainless steels, and titanium. ETFN also has in-house heat-treatment and testing capabilities.
The Hirschvogel Automotive Group, headquartered in Denklingen, Germany, will set up a new plant in Mexico. Hirschvogel, a global producer of forged steel and aluminum components, will locate the facility in San Juan del Río in the state of Querétaro about 90 miles northwest of Mexico City. The new site spans 115,000 square meters, about 1.24 million square feet, and groundbreaking is expected to occur in September. Installation of the forging machines is scheduled for the end of 2017, and full production of constant-velocity joints and transmission shafts is expected to commence in early 2018. The company, Hirschvogel Components Mexico S.A. de C.V., will be managed by President and CEO Stephan Lutzenberger, who most recently served as corporate product and process development, forging at the Denklingen plant.
VIII. GLOBAL ECONOMIES CONTINUE EQUILIBRIOUS AUGUST 2016 BUSINESS SURVEY INSIGHTS
by Norbert Ore
With only a couple of exceptions, bouncing up and down around the mid-point seems to be the trend for the August reports as it appears that many reports that were up in July fell in August and vice versa. While the overall picture appears eerily balanced, more remarkable is the resilience that keeps surfacing.
While global economies are still considered to be underperforming, 13 of the 18 (12 in July) surveys that we follow are growing at an average PMI of 51.9 and lower than the July average of 52.8 percent. The JP Morgan Chase Global PMI (50.8, -0.2) which measures over 30 countries indicates that August provides little change from July.
In the continuing saga of the Brexit, the UK (53.3, +5.1) reversed direction in August and made a substantial showing since the UK averaged only 51 for the first half of 2016. Last month we posited that there had to be some inventory accumulation as supply insurance prior to the vote and then a degree of liquidation afterward – that is still a likely explanation as it is punctuated by the bounce.
China’s Official Report, the CFLP PMI (50.4, +0.5), has averaged 49.9 for the first eight months of the year. The Caixin China General Manufacturing PMI (50.0, -0.6) fell to the mid-point and has averaged 49.2 for the first eight months. Manufacturing in China has shown little change since we began tracking both surveys in 2012.
In North America, Canada (51.1, -0.8) reported growth for the sixth month following a seven-month contraction. Mexico (50.9 +0.3) recorded its thirty-seventh consecutive month of growth as it recovered slightly after posting its lowest level in 33 months in July.
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IX. THE SKILLS GAP, EMPLOYMENT, AND ASSOCIATED TOPICS
by Royce Lowe
Peter Feil heads U.S. operations for German gearbox and motor maker Stober Drives. The company has 120 employees and is located in Maysville KY, a town of 9,000 people, an hour from both Cincinnati and Lexington.
Mr. Feil is very keen on apprenticeships, and since launching a program some ten years ago the company has trained 32 apprentices and has 16 current. The community is relatively small, and the apprenticeship program is open to a broad age range, and has taken in applicants from 18 to 43 years of age, to study anything from machining to maintenance and in accounting, electrical, marketing, industrial engineering and quality.
The community needs good workers, hence the program, and to quote Mr. Feil, ‘anything we can do to provide opportunities and convince kids to stay is going to be critical for maintaining any kind of industry ……the more kids we can retain, the more businesses will thrive. Every kid we lose is a lifetime worker that’s not going to be in our town.’ The average age of an apprentice is 29, and as such it is not like Germany, but if someone is 40 and suitable they will be welcome and appreciated on the program.
Mr. Feil says one of the big secrets of his company’s success is that they’re in the power transmission and motion control business, ‘but to be sustainable we also need to be in the people development business’.
by Royce Lowe
Nissan says that UK E.V. Chargers may outnumber fuel stations by 2020. More than 75 percent of gas stations in the UK closed in the past 40 years, whereas the number of EV Charging stations has increased from a few hundred in 2011 to 4,100 in 2016.
FORD says it will mass produce a fully autonomous, self-driving car without a steering wheel by 2021.
Local Motors – you already read about them here – manufacturers of Olli the minibus with IBM’s Watson computer, and other cars made to order, are now partnered with GE, Siemens, PLM, Sabic, NXP and IBM. They have received orders for Olli from around the world, possibly because Watson, along for the ride, will answer any questions passengers may have. LM is not looking to produce extraordinary numbers of vehicles, rather hundreds of mini-factories across the country that might produce 3,000 vehicles per year. The first mini-factory, in Knoxville, TN, will start producing cars in 2018.
Tesla has developed a 100 KwH battery with a 315 mile (500 km) range, for a car that will go from 0 to 60 in 2.5 seconds (who needs it?)
It is estimated that in the first (just over) seven months of this year, 19,100 people were killed on U.S. roads, and that 2.2 million were seriously injured. The total cost was approximately $205 billion and the figures are about 9 percent up on the corresponding figures for 2015. Possible reasons being put forward are a stronger economy, lower unemployment, average gas price down 16 percent on 2015 and an increase in miles driven of 3.3 percent.
Driverless taxis will hit the streets of Singapore in the next couple of years, at least a 2.5 square mile area. Renault and Mitsubishi will collaborate on the vehicles for nuTonomy, a U.S. based tech start-up that developed the software used in the vehicles. Six taxis will take part in the trials, each accompanied by an engineer who will be ready to take over in an emergency.
Volvo and Uber are to venture together into driverless car technology.
VW meanwhile, even though it has come to a huge settlement with states and individual owners, has yet to pass by Federal and State authorities, including the Justice Department. Some 600,000 vehicles in the U.S. and about 11 million worldwide are ‘in question.’
by Royce Lowe
Joe Sutter, a Boeing engineer and Father of the 747, died recently at the age of 95. He led the team that crafted the ‘jumbo jet’ in less than two-and-a-half years, and left his influence on most of the aircraft that came after.
A week after the Air Force said its version of the Lockheed Martin Corp’s F-35 was ready for limited combat operations, Michael Gilmore, the Defense Department’s director of operational testing, said the $400 billion project was ‘still riddled with deficiencies.’ This is bad for both the Air Force and for those countries who have committed to buy, namely the UK, Italy, Australia, Japan and Israel – if the project moves into production in 2019.
China will invest $7.5 billion in a jet engine conglomerate with almost 100,000 employees, the Aero Engine Corporation of China (A.E.E.C.) President Xi Jinping said the company would make China an aviation power and would modernize its military.
China does not make large commercial jet engines of its own and its narrow-body aircraft, the C919, is powered by engines from CPM International, a joint venture between GE and France’s Safran.
This is a long-term project, and ‘getting it right’ will be a very long-term project.
ANA Holdings Inc., the world’s biggest operator of Boeing’s Dreamliner jet, is checking the Rolls Royce engines on its entire fleet of 787s following a February incident when an airliner had to shut down a power plant and return to the airport. Corrosion was found on turbine blades and Rolls Royce will supply modified versions of these blades.
All 787s worldwide were taken from the skies in 2013 following a lithium-ion battery meltdown, a problem Boeing fixed. This represented the first time in over three decades that an entire model had been grounded.
Rolls Royce meanwhile has a $1.5 billion contract to supply Trent 700 engines to power 15 Airbus A330 jets for China Eastern Airlines, a contract that includes long-term maintenance and support services.
XII. THE MANUFACTURING SCENE: EAST MEETS WEST, OR BUILDING THE LEXUS IN THE U.S.
by Royce Lowe
Wil James walked through mud when they were breaking ground for Toyota’s Camry plant back in the late eighties. He’s worked for Toyota since 1987, when the Georgetown, KY plant was going up, and is now president of Toyota manufacturing USA, and hence ultimately responsible for the recently completed $360 million second plant. Where they’ll build the Lexus ES 350.
Mr. James had 30 months to put together a 750-person team, trained to meet the standards required in a luxury brand producing 50,000 cars a year, a challenge bigger than building the plant and setting up the equipment. Some 75 percent of the Lexus workers came from the Camry plant, some of whom had been there since 1987, so they were thoroughly versed in the Toyota production system. The Lexus, however, required longer stretches on each process, more sensory tasks and more expertise. Workers who had been used to completing their process in 55 seconds found themselves on a line moving at about 4.1/2 minutes per process. This meant sensory, especially touch, detection of flaws as small as a human hair.
In Japan Lexus plant workers follow the principles of Takumi, or master craftsmen, whose expertise is so valued that their framed photographs hang on Lexus plant walls. The mindset of the Japanese counterparts’ 30 years had to be ‘transferred’ to Kentucky workers in 30 months. Toyota Kentucky employees were transferred only to Lexus areas matching their skills, an approach that worked so well that Toyota applied it across the entire Kentucky operation. One-and-a-half million training hours were given to the staff, much with trainers brought in from Japan, before the car went on line.
Some training was sensory, and involved detection of millimeter gaps and blindly pulling three different-sized bolts at a time, so the workers could pull out exactly what they needed for each task by feel. Sight, sound and touch were all involved. There was book learning and recitation of the information held in the pages. Here was perhaps a good reason for learning by rote.
The assembly team stripped and rebuilt 25 ES 350s.
Training was rooted in Kodawari, the Japanese principle that every tiny detail matters, and was at times almost poetic, for example, the plant’s master stitcher, to show what he could do, was required to master origami with his non-dominant hand.
The last word goes to Wil James: ‘Our single most accurate and valuable tool on our production continues to be the highly-skilled, well-trained worker.’
XIII. TECHIE CORNER
by Royce Lowe
GE is out buying up new technology again. The world’s largest maker of aircraft engines made a bold move to acquire technology that could transform factory production in the coming decades. The company said it will spend $1.4 billion to buy two European makers of 3D printers to expand use for the manufacture of components such as aircraft parts.
GE offered to buy Sweden’s Arcam AB for 5.86 billion kronor (US$680 million) and, in a separate transaction, SLM Solutions Group AG of Germany. The Boston-based company said its first jet engine parts, called fuel nozzle interiors, made with the technology were introduced into service in July, paving the way for wider use.
The global market for 3D printing, or additive manufacturing, is growing as companies like GE move more toward commercial parts production from making prototypes. The aviation industry was a frontrunner in the use of the technology as it allows for more complex designs, helps to lower the weight of parts and cuts back on waste of expensive materials. GE Aviation has said it expects to print more than 100,000 parts for its jet engines by 2020.
GE is effectively buying into two competing technologies. Arcam promotes its proprietary technology, which uses electron beams, as a fast printing process with a greater ability to use a wide range of printing materials. SLM’s (Selective Laser Melting) laser-based systems are generally capable of making more detailed components. GE became Arcam’s top customer last year, placing the largest order to date to help produce turbine blades for jet engines.
The two companies bring together two different additive manufacturing technologies, and with time it is GE’s intention to extend the line of additive manufacturing equipment and products.
GE’s fuel nozzles made using 3D printing are a predominant use of the technology in the aviation industry, but airplane-makers Airbus and Boeing are also working on the process.
Airbus Group is just starting to incorporate 3D-designed parts on a test basis, and aircraft parts produced with such technologies will grow substantially over the coming years.
Siemens AG has acquired 85 percent of Materials Solutions Ltd., of Worcester, England, a company that also uses selective laser melting, in the production of nickel-superalloy parts for land-based and aerospace gas turbines, and specialty steel and titanium components for aerospace systems and performance automotive systems.
XIV. OTHER NEW NEWS
by Royce Lowe
Michael Bless, CEO of Century Aluminum, in Hawesville, KY, is trying single-handedly to save the U.S. aluminum industry from China. Alcoa, who have a plant near Shanghai, will not step in, perhaps for fear of retaliation and trade cases.
China produces 55 percent of the world’s aluminum, and plans 9 percent more in 2017, according to Researcher Harbor Intelligence. In the past two years Century’s payroll has been cut by more than half.
Harbor quotes the LME price of aluminum at around $2,800 per ton in 2011, $1,682 in 2015 and recently at $1,564., and says any price below $1528 may result in Century shutting down its remaining smelters.
There are 140,000 workers in the U.S. steel industry, just 3,500 in its aluminum industry. Century and Alcoa are the last two U.S. makers of primary aluminum, which is used to make anything from beer cans to aircraft components. Outside China, Century’s Hawesville smelter is one of just two in the world that mass produces high-purity aluminum used in U.S. defense applications. The other is in Dubai.
We will follow this story with interest.
The construction industry’s impact on the U.S. GDP has increased by over 21 percent since the low point in 2011, according to data from the U.S. Bureau of Economic Analysis. In 2016 construction’s contribution to the U.S. economy increased to over $650 billion for the first time since 2008.
Construction now counts 6.7 million employees, up from the low of 5.4 million in January 2011 and compared to the peak figure of 7.7 million in 2006. Recession-delayed work on roads, bridges and other infrastructure is fueling the increase.
As the building of new houses, offices and roads continues, many construction firms are struggling to find enough workers, especially carpenters and electricians. A 2015 survey by the Associated General Contractors of America (AGC) showed that 86 percent of respondents were having trouble filling available positions, compared to 81 percent in 2013, with carpenters, sheet metal installers, concrete workers, project managers and supervisors particularly hard to find. Lots of construction jobs evaporated during the recession and people left the business to do other things.
Arcelor Mittal, the world’s largest steelmaker, has been fined $110 million for price fixing in South Africa. By ‘colluding’ with competitors it kept prices high in 2008. The company supplies over 61 percent of South Africa’s steel. It will pay its fine in five annual instalments. Sounds like a drop in the ocean really.
GE is to break ground on a new $165 million Brilliant Factory in Welland, Ontario, where it will manufacture energy-efficient reciprocating gas engines and utilize the Industrial Internet of Things. The plant will occupy 450,000 sq. ft. and will employ 220 people by late 2020. Ontario will grant GE $20.5 million and the project will be supported by Canada’s Export Development Council (EDC) with whom GE has a very good relationship. The U.S. Export-Import Bank had not been reauthorized by Congress when the announcement of this project was made in September 2015, and in fact the E-I Bank remains unable to approve transactions over $10 million
XV. THE FINAL WORD
by Royce Lowe
The drop in the U.S. manufacturing PMI into contraction territory may have been an anomaly and there is some cautious optimism for the coming months. The Global scene is plodding along, with Europe and the U.S. being counterbalanced by China and Japan. There again, there are those who say that China is on the up again.
Automotive sales figures in the U.S. fell overall by over 4 percent in August, in spite of buyers being offered the best deals since the great recession. The industry may have peaked but who knows?
A lot is being written about driverless cars, but not too much about the people who may want to sit in them.
The Global manufacturing economy seems to be teetering. It’s month by month, strange but always interesting.
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