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Metals & Manufacturing Outlook – Sep 2015
I. Cover Story: NOT TOO MUCH TO CHEER ABOUT…OR IS THERE?
II. NORTH AMERICAN PERSPECTIVE
III. U.S. FORGING INDUSTRY
IV. MANUFACTURING TALK RADIO
VI. ASIA OUTLOOK
VII. SOUTH AMERICA
VIII. THE GLOBAL SUMMARY
IX. THE MANUFACTURING SCENE
X. THE FINAL WORD
Regardless of which PMI report you look at, or all of them together, three things are clear: 1) manufacturing for 2015 isn’t in a boom cycle as many had predicted, 2) manufacturing in 2015 for the balance of the year is expected to remain above 50 in the U.S., but not by much, and 3) the new normal GDP will be in the low 2’s for the next two years unless something ugly happens that would drive it lower.
GDP growth of 3-4% in the previous 30 years, before the 2008 Great Recession, was driven by deficit spending at every level: consumer (credit cards, home equity loans), town, city, county state and federal (bonds, T-Bills, muni’s and other debt instruments). Everyone borrowed against a brighter, rosier future that did not blossom, and now those chickens are coming home to roost in 2008.
Today, consumer credit is maxed out. Banks are risk adverse and fewer bonds can be sold at low interest rates to fund more deficit spending or debt service. China, Russia and other large consumers of U.S. Treasury instruments are no longer in an economic place where they can buy, or even want to buy more U.S. debt unless the rate of return is increased, which makes U.S. borrowing to drive its deficit spending for unfunded obligations more expensive to service tomorrow.
Manufacturing growth has slowed, although there is still measurable investment in construction of manufacturing plants. That should translate into machinery to put into those plants and increased production and output, unless they bet wrong, which would then mean shiny new shuttered buildings.
The government, including federal, state, county, city, and town, are going to want to tax more to both clean up their debt mess and have more money to spend on new things we probably don’t need. The real solution for governments is to cut spending in up cycles, even modest ones like 2015-2016-2017, and balance their books. Otherwise, they will tax consumers and businesses more, which can only be made up by consumers cutting their lifestyles and businesses either raises prices or pink slipping employees, or more likely, both. And as prices rise, demand falls. As of this writing, raw material, commodity and feed stock prices for goods used by manufacturers are falling, but so are new orders. Lower prices are not stimulating demand by manufacturers, and inventories or finished goods are dramatically up, which means buyers aren’t buying at a fast enough rate – at the moment. But which way is this headed?
The real problem is this: all this unsettling news causes everyone, from you and me to corporate titans through small business owners to become cautious, wary and even withdrawn. Consumers take their chips off the table to wait and see, which means less buying. Inventories then build, new orders fall, and less goods need to manufactured. That isn’t a brighter, rosier picture. Even as analysts look at the underlying fundamentals and under the recession rock, nothing seems to point to the economy coming off the tracks. It just seems that the grade is a long and winding uphill road where the economy has slowed down to navigate the turns and perhaps catch a glimpse of the scenery ahead. And there is just nothing definitive up there, nothing driving it one way or the other.
At this juncture, our best guess is for a slower economic ride through recovery in manufacturing, which is still not at pre-Great Recession levels. If unemployment remains low, taxes aren’t increased, population growth remains steady, and wages begin to rise, then GDP could be is the 2.0-2.5 range for 2016 and 2017. And that is as much of an optimistic outlook as we can discern for this month’s Metals & Manufacturing Outlook at this moment. However, it could all change by next week or next month. But honestly, wait and see is maddening.
Lewis A. Weiss, Publisher
Tim Grady, Editor-in-Chief
P.S. Join us for NJ Manufacturing Week: Talent Driving Prosperity Kickoff on September 28 at New Jersey Institute of Technology in Newark, NJ.
The kick-off focuses on supporting NJ manufacturers through the training of youth and adults for the growing number of technology driven jobs in manufacturing.
Keynote speakers, Manufacturing Talk Radio Hosts, Lewis Weiss and Tim Grady will deliver their speech on “Solutions to the Skills Gap in Manufacturing.”
Catherine Starghill, Executive Director, Workforce Operations & Business Services with the NJ Department of Labor & Workforce Development, will present the NJ Manufacturing Week Proclamation.
JoAnn Mitchell, Senior Project Leader, Sandvik Coromant, will speak on “Developing our Youth for Careers in Manufacturing.” Other speakers and expert manufacturers, educators and public officials will describe
Statewide supporting educational programs such as: Dream It. Do It., MechaForce and 2016 NJ Makers Day.
Register for this event.
I. COVER STORY: NOT TOO MUCH TO CHEER ABOUT…….OR IS THERE?
By Royce Lowe
In a world that’s never short of bad news, we certainly had a plateful in the month of August.
China hadn’t been really doing what China does best for some time. China is used to making lots of goods and selling and shipping them as well as reporting growth rates over 7 percent year after year. Things hadn’t been going too well on the production and export front for months, which was probably part of the reason that on August 11 China’s central bank devalued the yuan. The currency markets reacted and the stock markets along with them. On August 24 there was market chaos in Asia that found its way to Europe and then America. Then Tim Cook, Apple’s CEO, spoke to reassure the world that he felt China was an unprecedented opportunity over the long term, and abracadabra, the $66 billion loss on Apple’s shares was recouped and markets – including the Dow Jones Blue Chip (index) that had opened down 1,000 points – rebounded. Shanghai was down 40 percent at one point. Things have not been the same since; they wobbled, and they may continue to do so for some time. It is very much a time of wait and see who does what, why and when. Or who does nothing. So wait and see we will.
The news isn’t all bad. China hasn’t stopped consuming, nor is it likely to. The country consumes 54% of the world’s aluminum, 50% of its nickel, 48% of its copper, 46% of its zinc and tin, 45% of its steel, 40% of its lead and 31% of its cotton. Oh, and 30% of its rice. It may be that a lot of producers are crying that China isn’t buying what it did, when in fact they may be overproducing. There has been an awful lot of iron ore floating around the world of late.
The PMI figure from the Institute of Supply Management was at 51.1 percent in August, 1.6 percentage points down on July’s 52.7 figure, representing manufacturing expansion for the 32nd consecutive month and growth in the overall economy for the 75th consecutive month.
The Markit PMI for the US manufacturing sector fell back to a 22-month low of 53.0 in August, from July’s 53.8 figure. There was a ‘slight loss of momentum’ across the sector with slower rates of growth in production, new orders and employment seen in August. There is also a suggestion of tighter inventory policies in the light of ‘global economic uncertainty.’ But overall, new order volumes are up at a solid pace, albeit at a lower rate of expansion than in July. There was job creation across the manufacturing sector in August, with manufacturers stating that new product launches and ongoing expansion plans had encouraged them to boost employment. The strong dollar still seems to be hurting new export business.
The Bureau of Economic Analysis came out with its ‘second’ estimate for the annual rate of Real GDP growth in the second quarter of 2015, placing it at 3.7 percent, a significant increase on its ‘advance’ estimate of 2.3 percent. The corresponding figure for the first quarter of 2015 was 0.6 percent. The Real GDP is the value of goods and services produced by the nation’s economy, less the value of the goods and services used in production, adjusted for price changes. Corporate profits from current production were up $47.5 billion in the second quarter of the year, compared with a drop of $123 billion for the first quarter.
The Dun and Bradstreet Economic Health Index for August showed that 206,000 new non-farm jobs were added to U.S. payrolls in the month. The Business Services segment continued to lead, with solid support from Trade, Transportation and Utilities, but the pace in these two sectors was a little slower than of late. Retail and Construction however showed a more robust performance. The Small Business Health Index lost a little ground from last month, showing a 0.1 percent fall. To quote D and B : ‘Overall U.S. Business health shows a significant upturn in August as the Business Health Index hits its all-time high for the first time this year.’
GALLUP’s U.S. Economic Confidence Index dropped to -17 at the end of August, whereas the Gallup Job Creation Index for the month stayed at the record high figure of +32.
World crude steel production for the 65 reporting countries for the month of July 2015 was 133Mt, down 3.8 percent from the July 2014 figure. The capacity utilization ratio, at 68.4 percent, was down 4.2 percent y-o-y, and down 3.8 percent on June 2015.
U.S. crude steel production, for July 2015 was 6.99Mt, down 9.1percent y-o-y.
Primary Global Aluminum Production in July 2015 was 4.92 million tonnes. Of this total, 2.724 million tonnes, over 55 percent, was produced in China. The Gulf Corporation Council (GCC) produced 431,000 tonnes and North America 373,000 tonnes.
Here are the latest figures for US new car and light truck sales for ‘the big eight’ for August 2015.
|The ‘Big Eight’||August ’15||August ’14||YTD % change|
|Total new cars and light trucks||1577407||1586015||-0.5|
* There was one fewer selling day in August 2015 than in August 2014.
FORD has moved production of its F-650/F-750 medium-duty trucks from Mexico to Ohio.
GM has selected American Axle and Manufacturing as its supplier for axles and driveshafts for its ‘next generation full-size truck program.’
Meanwhile the new Tesla electric car got the best ever vehicle rating from Consumer Reports, 100/100, for its energy efficiency, safety and performance. Its $125,000 price tag may be too much for most people, but in 2018 the company plans to bring out a compact sedan starting at $35,000. Tesla plans to invest $1.5 billion this year to increase production capacity, to build a large factory for batteries and to expand its network of charging stations.
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||+2.4 (2015)||+1.3 (July)||+0.2 (July)||5.3 (July)|
|Canada||+1.5 (2015)||– 4.1 (May)||+1.3 (July)||6.8 (July)|
|China||+7.0 (qtr)||+6.0(July)||+1.6 (July)||4.0 (Qtr 2)|
|Japan||+0.9 (2015)||+1.5 (June)||+ 0.4 (June)||3.4 (June)|
|Britain||+2.8 (qtr)||+2.1 (May)||+ 0.1 (July)||5.6 (May)|
|Euro Area||+1.3 (qtr)||+1.2 (June)||+ 0.2 (July)||11.1 (June)|
|France||nil (qtr)||+0.6 (June)||+ 0.2 (July)||10.2 (June)|
|Germany||+1.8(qtr)||+0.6 (June)||+ 0.2(July)||6.4 (July)|
|Spain||+4.1 (qtr)||+7.4 (June)||+ 0.1 (July)||22.5 (June)|
|India||+ 11.0 (qtr)||+3.8 (June)||+ 3.8(July)||4.9 (2013)|
|Brazil||– 0.6 (qtr)||– 3.2 (June)||+ 9.6 (July)||7.5 (July)|
|Taiwan||– 6.6 (qtr)||– 3.0 (July)||– 0.7(July)||3.7 (July)|
|Mexico||+ 2.0 (qtr)||+ 1.4 (June)+ 2.7 (July)||4.4 (June)|
II. NORTH AMERICAN PERSPECTIVE
by Royce Lowe
The Institute of Supply Management PMI figure registered 51.1 percent in August, 1.6 percentage points below July’s reading of 52.7, representing expansion in manufacturing for the 32nd consecutive month and growth in the overall economy for the 75th consecutive month. Ten of the eighteen industries reported growth in August, in order, Textile Mills; Furniture & Related Products; Paper Products; Non-metallic Mineral Products; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; Fabricated Metal Products; Plastics & Rubber Products; and Machinery. The six industries reporting contraction in August — listed in order — are: Apparel, Leather & Allied Products; Primary Metals; Electrical Equipment, Appliances & Components; Petroleum & Coal Products; Computer & Electronic Products; and Transportation Equipment.
Comments on the month from Food, Beverage & Tobacco Products respondents say falling crude oil prices are helping resin-based purchases and also helping with fuel surcharges for inbound products. Fabricated Metal Products personnel say that commercial construction is good for business. Chemical Products respondents say growth is modest but they are optimistic for the balance of the year as they have a minimum of overseas exposure. Computer and Electronic Product respondents say foreign exchange is a challenge, especially in Europe, but they are upbeat about the balance of the year. Miscellaneous Manufacturing respondents say lower metal prices are good for their business. Paper Products respondents say they are ‘oversold.’ Machinery personnel say automotive companies are investing heavily in equipment upgrades. Furniture and Related Products respondents say that business conditions continue to be strong but that they are struggling to find labor. Wood Products respondents say business is steady but competitive, margins are tight and China is lackluster.
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 ISM New Orders Index for August, at 51.7 perccnt, was down by 4.8 percentage points from July’s 56.5 percent reading, representing growth in new orders for the 33rd consecutive month, but at a slower rate than in July. The seven industries reporting growth in new orders in August — listed in order — are: Textile Mills; Plastics & Rubber Products; Paper Products; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Computer & Electronic Products. The seven industries reporting a decrease in new orders during August — listed in order — are: Wood Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Primary Metals; Petroleum & Coal Products; Machinery; and Fabricated Metal Products.
- The ISM Production Index, is at 53.6 percent in August, down 2.4 percentage points from July’s 56.0 percent reading, representing growth in production for the 36th consecutive month. The eight industries reporting growth in production during the month of August — listed in order — are: Textile Mills; Plastics & Rubber Products; Paper Products; Miscellaneous Manufacturing; Fabricated Metal Products; Furniture & Related Products; Food, Beverage & Tobacco Products; and Chemical Products. The five industries reporting a decrease in production during August are: Primary Metals; Electrical Equipment, Appliances & Components; Machinery; Computer & Electronic Products; and Transportation Equipment.
- The ISM Employment Index for August, at 51.2 percent, is down 1.5 percentage points on July’s 52.7 reading. Six industries reported employment growth in the following order: Nonmetallic Mineral Products; Paper Products; Fabricated Metal Products; Machinery; Chemical Products; and Food, Beverage & Tobacco Products. The eight industries reporting a decrease in employment in August — listed in order — are: Petroleum & Coal Products; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Primary Metals; Plastics & Rubber Products; Computer & Electronic Products; Miscellaneous Manufacturing; and Transportation Equipment.
- The ISM Supplier Deliveries Index – The delivery performance of suppliers to manufacturing organizations was slower in August as the Supplier Deliveries Index registered 50.7 percent, which is 1.8 percentage points higher than the 48.9 percent reported in July. This follows two months of faster supplier deliveries. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.
The five industries reporting slower supplier deliveries in August are: Furniture & Related Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Machinery; and Transportation Equipment. The five industries reporting faster supplier deliveries during August are: Petroleum & Coal Products; Plastics & Rubber Products; Paper Products; Computer & Electronic Products; and Chemical Products. Eight industries reported no change in supplier deliveries in August compared to July.
- The ISM Inventories Index, at 48.5 percent for August, is 1.0 percentage points lower than the 49.5 percent reading for July. This indicates that raw material inventories are contracting for the second consecutive month. The six industries reporting higher inventories in August — listed in order — are: Wood Products; Furniture & Related Products; Nonmetallic Mineral Products; Machinery; Fabricated Metal Products; and Computer & Electronic Products. The seven industries reporting lower inventories in August — listed in order — are: Apparel, Leather & Allied Products; Primary Metals; Plastics & Rubber Products; Food, Beverage & Tobacco Products; Paper Products; Miscellaneous Manufacturing; and Chemical 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 53.0 percent in August, 9.0 percentage points higher than July’s 44.0 reading, meaning that customers’ inventories are considered to be too high, a situation which has not obtained since March 2009, when the Customers’ Inventories Index registered 54 percent. The eight manufacturing industries reporting customers’ inventories as being too high during the month of August — listed in order — are: Fabricated Metal Products; Furniture & Related Products; Primary Metals; Food, Beverage & Tobacco Products; Computer & Electronic Products; Machinery; Transportation Equipment; and Miscellaneous Manufacturing. The three industries reporting customers’ inventories as too low during August are: Paper Products; Chemical Products; and Nonmetallic Mineral Products.
- The ISM Prices Index registered 39.0 percent in August, 5.0 percentage points lower than in July, indicating a decrease in raw material prices for the 10th consecutive month. In August 6 percent of respondents reported paying higher prices, 28 percent lower and 66 percent the same prices as in July. Of the 18 manufacturing industries, no industries are reporting paying increased prices for their raw materials in August. The 14 industries reporting paying lower prices during the month of August — listed in order — are: Primary Metals; Petroleum & Coal Products; Apparel, Leather & Allied Products; Plastics & Rubber Products; Furniture & Related Products; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Nonmetallic Mineral Products; Chemical Products; Computer & Electronic Products; Machinery; Paper Products; Food, Beverage & Tobacco Products; and Transportation Equipment.Up in Price in August were:
Plastic Products *
* Reported as both up and down in price
Down in Price in August were:
Aluminum (9); Copper (2); Crude Oil; Diesel Fuel; HDPE Resin; Nickel (2); Oil; Plastic Products*; Plastic Resins; Scrap metal; Stainless Steel (10); Steel (2); Steel Cold- Rolled (3).
In Short Supply in August:
Note: The number of consecutive months the commodity is listed is indicated after each item.
- The ISM Backlog of Orders Index was at 46.5 percent in August, 4.0 percentage points higher than the July reading of 42.5 percent, indicating a contraction in order backlogs for the third consecutive month, but at a slower rate than in July. Of the 86 percent of respondents who measure their backlogs, 17 percent reported greater backlogs, 24 percent smaller backlogs and 59 percent no change from July. The five industries reporting increased order backlogs in August are: Textile Mills; Paper Products; Miscellaneous Manufacturing; Computer & Electronic Products; and Chemical Products. The nine industries reporting a decrease in order backlogs during August — listed in order — are: Wood Products; Apparel, Leather & Allied Products; Primary Metals; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Transportation Equipment; Machinery; Food, Beverage & Tobacco Products; and Nonmetallic Mineral Products.
- The ISM New Export Orders Index was at 46.5 percent for August, down 1.5 percentage points from July’s 48.0 reading, indicating effectively the third consecutive month of decrease in new export orders. The five industries reporting growth in new export orders in August are: Nonmetallic Mineral Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Paper Products. The seven industries reporting a decrease in new export orders during August — listed in order — are: Primary Metals; Furniture & Related Products; Apparel, Leather & Allied Products; Chemical Products; Machinery; Fabricated Metal Products; and Transportation Equipment. Six industries reported no change in new export orders in August compared to July.
- The ISM Imports Index, is at 51.5 percent in August, or 0.5 percentage points lower than July’s 52.0 reading. This represents the 31st consecutive month of growth in imports. The seven industries reporting growth in imports during the month of August — listed in order — are: Primary Metals; Transportation Equipment; Furniture & Related Products; Plastics & Rubber Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; and Computer & Electronic Products. The four industries reporting a decrease in imports during August are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Miscellaneous Manufacturing; and Machinery. Six industries reported no change in imports in August compared to July.
The U.S. Is filing anti-dumping legislation against seven nations, Australia, Brazil, South Korea, the Netherlands, the U.K., Japan and Turkey, on the grounds that they are causing injury to the domestic steel industry. In 2014, South Korea shipped almost $680 million worth of flat-rolled steel to the U.S.
U.S. machine shops and other manufacturers consumed $188.7 million of cutting tools in the month of June, nine percent up on May but one percent down on June 2014. This is considered to be a good barometer of manufacturing activity.
A record 14,232 robots, worth $840 million, were ordered by North American robotics companies in the first half of 2015, worth 7 percent more in revenues than in the same period in 2014. There were big gains in the coating/dispensing and materials handling sectors, according to the Robotics Industries Association.
On the U.S. Aerospace front, Boeing is selling and leasing fifteen 787 Dreamliners to Israel’s El Al airline. Boeing also sees a 20-year demand from India of 1,740 aircraft, mostly narrow-body planes for low-cost and regional airlines. Boeing will be called upon, as will Airbus, to eventually supply some 300 new aircraft to Iran on the back of the nuclear deal, to replace its aging fleet. This will start with an order for 80 to 90 new aircraft.
And Walmart is planning to increase U.S. purchases by $50 billion annually by 2023, resulting in an extra 300,000 U.S. manufacturing jobs.
CANADA’S RBC (Royal Bank of Canada) Manufacturing PMI was at 49.4 percent in August, down from July’s 50.8 figure, the lowest reading since May and below 50 for the first time in three months, August saw a downturn in the Canadian manufacturing sector, although overall deterioration was only marginal. There was a decline in production for the first time in four months and employment decreased at the joint-fastest rate since October 2010.
Alberta and British Columbia both saw sharp, accelerated downturns, while Ontario and Quebec continued to show overall manufacturing sector growth. Employment cuts were most prevalent in Alberta and British Columbia.
Canada produced 1.06Mt of crude steel in July, down 5.0 percent y-o-y.
Bombardier’s new CS100 narrow-body jet has passed 80 percent of the flight test hours required to gain certification for commercial service and is on schedule for its commercial debut in the first half of 2016.
China Railway Corporation booked a $351 million order with a JV company Bombardier Sifang (Qingdao) Transportation. This is for supply of a series of train-sets with eight cars each for expanding China’s high-speed rail network.
Canam-Ponts (Canam-Bridges), a division of The Canam Group Inc. of St, Georges, Quebec recently signed a contract worth $225 million to supply the steel superstructure for the approaches to the new Champlain Bridge in Montreal. This is the biggest contract obtained by the Canam Group. The Champlain bridge links the Island of Montreal to its south shore.
Canadian auto sales increased 2 percent y-o-y in August, with sales over 175,000 units for the fifth consecutive month and sales increases for the 29th consecutive month.
Mexico’s PMI for August was at 52.4, down from July’s 52.9 reading. Overall there was less momentum, with production growth slowing for the third time in the past four months, but export orders showed the second-fastest increase since April 2012. Employment picked up in August to its strongest level in seven months, suggesting that manufacturers remain optimistic about the longer term outlook.
Mexico produced 1.58 Mt of crude steel in July 2015, up 2.4 percent y-o-y.
Mexico leads manufacturing growth in Latin America. Its auto sector expanded output 11.1 percent in the January to April period. Brazil, Argentina and Mexico account for over 80 percent of the manufacturing output in Latin America, whose growth is forecast at – 0.9 percent in 2015 and +1.9 percent in 2016. Mexico’s performance is offset by those of Argentina and Brazil, both of whom are in recession.
III. U.S. FORGING INDUSTRY: FORGING SALES UP
by Royce Lowe
The Forging Industry Association (FIA) recently released figures showing total 2014 shipments of impression-die, open-die and seamless rolled ring forgings in the U.S., Canada and Mexico. Shipments for the year total just short of $12 billion, up 10.8 percent on 2013, and the highest total in the past decade.
Custom impression-die forgings were up 12 percent to $8.19 billion, with 30 percent going to automotive, 21 percent to commercial aerospace applications
Custom open-die forgings were up 12.35 percent to $2.07 billion, with oil and gas exploration machinery and equipment taking 30.3 percent of production, and defense – military aerospace, military heavy vehicles, ordnance/guided missiles, and naval nuclear applications – taking a further 13.7 percent of production.
Custom seamless rolled rings were up 3.45 percent to $1.66 billion, with commercial aerospace taking 45.4 percent of production and oil and gas machinery and equipment taking 13.3 percent of production.
Meanwhile Warren Buffet paid some $37 billion for Precision Castparts, a manufacturer of parts for the aerospace industry, and in turn the owner of Specialty Metals, the inventor and developer of the Inconel and Incoloy groups of high-nickel alloys that are used extensively in the aerospace and chemical processing industries. Precision Castparts made a net profit of $1.53 billion on sales of $10 billion in its last fiscal exercise.
IV. MANUFACTURING TALK RADIO
by Tim Grady
On August 4th, Brad Holcomb, Committee Chair of the Institute for Supply Management’s Manufacturing Report on Business put into context the ISM’s Purchasing Managers Index number for July 2015. In the second half of the show, Prof. Adriana Sanford provided insights as to why, although the substantial majority of the provisions of the Dodd-Frank Act apply to public companies, many small and mid-sized companies are also implementing similar controls because their investors or executives demand it.
Small and medium-sized businesses must appreciate the closer scrutiny that will be brought on by whistle-blowers, particularly regarding FCPA matters. Whether you are on the manufacturing floor, a supply chain professional, in receiving, or a corporate executive, doing the right thing is the right thing to do.
On Tuesday, Aug. 11, John Disharoon, Director of Market Access for Caterpillar’s Cat Reman and Dr. Nabil Nasr, Associate Provost for Academic Affairs and Director of The Golisano Institute for Sustainability, discussed remanufacturing’s role in the circular economy with co-hosts Tim Grady and Lew Weiss. Increasingly, remanufacturing operations hold significant roles in sustainability initiatives. Listen in as two leading voices in remanufacturing bring you up speed on the intricate elements and challenges of the remanufacturing process today, and hear all about the R&D for tomorrow that will insure manufacturers keep non-renewable resources in circulation and costs down long after the original product would have hit the landfill.
On Tuesday, August 18, Gardner Carrick, Vice President of Strategic Initiatives for The Manufacturing Institute, Mario Hernandez, President of the San Antonio Economic Development Foundation, and Gale Tenen Spak, Prime Contact, ManufactureNJ Talent Network and the Associate VP for Continuing and Professional Education at New Jersey Institute of Technology discussed how the industry is preserving its brain-trust of seasoned workers, recruiting and retaining fresh minds that are inspired by exciting innovation and re-training the workforce caught in transition to close the skills gap.
Allison Grealis, President of Women in Manufacturing and Karen Norheim, Executive Vice President of American Crane discussed the evolution of women in manufacturing and the business case for creating, and maintaining, a strong presence of women leaders in the industry today in the first of our two-part series on Women in Manufacturing on August 25. The case for women in manufacturing has never been stronger to fill tomorrow’s jobs today.
by Royce Lowe
Markit’s Eurozone Manufacturing Composite Purchasing Managers’ Index (PMI) for August, at 52.3, was effectively the same as July’s 52.4 reading, which in turn was virtually unchanged from June’s 52.5 reading.
There was further expansion of the Eurozone manufacturing sector as witnessed by continuing growth in Germany, Italy, Spain, Netherlands, Austria and Ireland that was offset somewhat by contractions in France and Greece.
There were reports of strong gains in production and new orders with rates of increase up to their quickest pace for 16 months. Demand improved in both domestic and export markets and employment was up at its quickest pace for four years.
|Netherlands||53.9 (56.0)||5-month low|
|Italy||53.8 (55.3)||4-month low|
|Ireland||53.8 (56.7)||18-month low|
|Germany||53.3 (51.8)||16-month high|
|Spain||53.2 (53.6)||10-month low|
|Austria||50.5 (52.4)||3-month low|
|France||48.3 (49.6)||4-month low|
|Greece||39.1 (30.2)||2-month high|
Airbus is undertaking manufacture of 213 feet (65 meter) long carbon-fiber-reinforced polymer (CFRP) wing structures for its A350-1000 wide-body commercial aircraft, in Wales. This is forecast to allow reduced fuel consumption, extended range and increased carrying capacity.
Passenger car sales were up in August by 6.2 percent in Germany, 9.7 percent in France, 23 percent in Spain and 11 percent in Italy.
For the sixth time in eight years, Greece will vote again on September 20 or 27, following the August 20 resignation of its Prime Minister Alexis Tsipras, who is seeking a new mandate.
Crude steel production in Germany in July 2015 was at 3.6Mt, up 4.7 percent y-o-y; in Italy 1.9Mt down 11.6 percent y-o-y; in France 1.4Mt, down 1.4 percent y-o-y and in Spain 1.0Mt, down 1.0 percent y-o-y.
Russia’s crude steel production for June was at 6.04Mt, down 2.8 percent y-o-y, Ukraine’s was 1.87Mt, down 24.1 percent y-o-y.
The UK’s manufacturing performance remained sluggish, in spite of the strength of the consumer goods sector. Investment and intermediate goods remain weak. The PMI eased down to 51.5 percent in August from July’s 51.9 reading. The level of new export business dropped for the fifth consecutive month, and there was a reduction in employment in some larger companies.
The JP Morgan Global Manufacturing PMI – a composite index produced by JP Morgan and Markit in association with ISM and IFPSM (International Federation of Purchasing and Supply Management) – was at 50.7 in August, down slightly from July’s 51.0 reading. The rate of production expansion was the slowest since August 2013.
The Czech Republic, Italy, Spain and Germany showed the fastest rates of production expansion in August, with the U.S. contributing significantly despite its growth easing back to a 19-month low. This was all offset by contraction in China, France, Taiwan, South Korea, Indonesia, Malaysia, Russia, Greece and Brazil.
VI. ASIA OUTLOOK
by Royce Lowe
China produced 66Mt of crude steel in July 2015. down 4.6 percent y-o-y; Japan 8.8Mt down 4.9 percent y-o-y; India 7.7Mt, up 1.2 percent y-o-y and South Korea 6.1Mt, up 1.7 percent y-o-y. Taiwan produced 1.85Mt in July, down 2.8 percent y-o-y.
The Caixin China manufacturing PMI for August fell slightly further from July’s 47.8 reading to 47.3, representing six months below the 50 mark. This was all on the back of lots of bad news for the Chinese manufacturing sector, which saw the quickest drop in operating conditions for over six years in August. Total new orders, both domestic and export, fell at quicker rates than in July, and production showed its most marked contraction since November 2011. Weaker customer demand led to the first rise in finished goods stocks in six months.
August was the second successive month with a fall in total new orders and a rate of contraction at a 17-month record. New export business was down at its steepest rate in over two years. Chinese manufacturers reduced workforce numbers in August for the 22nd consecutive month, with the actual rate of job shedding increasing since July to a pace similar to June’s 76-month record.
Caixin’s Chief (Chinese) Economist suggests that macroeconomic regulations and controls must continue and fresh reform measures introduced.
Passenger and commercial vehicle sales fell by 7.1 percent in China in July, for the second consecutive month. The China Association of Automobile Manufacturers (C.A.A.M.) said that passenger car sales were down to 1.27 million units after falling by 3.4 percent in June. But the news from certain quarters is that this is all just a blip and that pent-up demand will send customers back to the showrooms in the not-too-distant future.
G.M., BMW and Volkswagen are expressing concern, saying that reduced Chinese sales are hurting them. The situation is not helped by government curbs on car ownership, brought in to reduce congestion and pollution in some of China’s bigger cities.
In Japan, the Nikkei manufacturing PMI went from July’s 51.2 reading to 51.7 in August, a seven-month high. This was all thanks to a solid growth in new orders, production and employment. All three sectors, investment, intermediate and consumer goods showed improvement. Some respondents said they had actually been obliged to dip into inventories of finished goods to fill new orders.
Japan returned to nuclear power, four years after the earthquake, the tsunami and Fukushima, with tighter safety rules. Japan and China are in competition to build a bullet train for Indonesia. Japan seemed to have won the contract until China came in with a bid. The outcome is yet to be decided.
In India, the Nikkei PMI reading eased slightly from July’s 52.7, a six-month high, to 52.3 in August, amid solid, albeit slower, increases in both production and new orders. Stocks of finished goods contracted at the sharpest pace in over ten years – when data were first collected – and some respondents commented that orders were being filled from inventory. Employment was effectively unchanged. Consumer goods were stronger than investment and intermediate goods in terms of growth of production and new orders.
India’s economy grew at 7 percent in the second quarter of 2015, lower than the forecast 7.4 percent. Manufacturing and service industries came in at over 7 percent, whereas agriculture and mining scored less than 7 percent. Prime Minister Modi was obliged to abandon land reforms aimed at speeding up stalled multi-billion-dollar infrastructure and other development projects because of protests from farmers.
Meanwhile Taiwan’s Foxconn, an Apple manufacturer, is to invest $5 billion in a new plant in India, to help service the estimated 952 million mobile connections there.
VII. SOUTH AMERICA – BRAZIL
by Royce Lowe
Brazil’s crude steel production for the month of July 2015 was 2.9Mt, a 3.1 percent y-o-y decrease. The manufacturing PMI in Brazil in August was down to 45.8 from July’s 47.2 figure, the lowest since September 2011. Employment fell in August at the fastest pace in over six years and new orders contracted at the fastest rate in almost four years. There is really no good news on the manufacturing scene in Brazil.
VIII. GLOBAL SUMMARY
by Norbert Ore
GLOBAL GROWTH STILL POSITIVE AUGUST 2015 BUSINESS SURVEY INSIGHTS
The global business surveys measure change from month to month and have historically provided the earliest look at economic performance on both a macro and micro basis. Of the 18 surveys that we follow, 11 are growing and 7 are declining. The 11 that are growing have an average PMI of 52.8, while the 7 in decline average 47.5 percent. Interestingly, but probably irrelevant, is those in decline are doing so at a rate that resembles the reciprocal of those that are growing. Fortunately, the number growing exceeds the number in decline. Based on the JP Morgan Chase Global PMI (50.7, -0.3), the rate of change globally is at best slight.
Figure 1: Used with Permission from Strategas Research Partners
Sources: Strategas Research Partners, Institute for Supply Management, markiteconomics.com
With France (48.3, -1.3) and Greece (39.1, +8.9) in extended decline, the rest of the Eurozone (52.3, -0.1) continues to grow. Germany (53.3, +1.5) is growing for the ninth consecutive month and posted its highest reading since April 2014. The remaining five Eurozone countries average 53 percent and were again led by Netherlands (53.9, -2.1), Italy (53.8, -1.5) and Spain (53.3, -0.3).
In the UK, (51.5, -0.4) the rate of growth decelerated slightly as the UK PMI registered its 29th consecutive month above the 50 mark. Consumer goods for domestic production and consumption are apparently the strength of the economy as opposed to the export market, which is struggling due to the strength of the pound sterling.
As for North America, Canada (49.4, -1.4) failed to grow for the month and for the year as it has averaged 49.9 since January. Mexico (52.4, -0.5) saw new export sales continue to expand at a robust pace that was only slightly less than the 50-month high registered in July.
Looking for clarity from China (which never seems to exist), the official data shows the pace of manufacturing to be similar to July as the CFLP PMI (49.7, -0.3) shows minimal change. However, the Caixin China General Manufacturing PMI (47.3, -0.5) registered significant contraction.
(Note: The Caixin China General Manufacturing PMI was formerly the HSBC survey).
IX. THE MANUFACTURING SCENE : U.S. MANUFACTURING FIGURES, FOOD FOR THOUGHT?
By Royce Lowe
The Bureau of Labor Statistics (BLS) says that the U.S. supported 12.3 million manufacturing jobs in July, up almost 160,000 jobs from the same time last year, but still two million less than a decade ago. Of this total, approximately 1.7 million jobs were in Transportation, 1.5 million in Fabricated Metal Products, 1.2 million in Machinery, 1.1 million in Computers and Electronic Products and 400,000 in Primary Metals.
At the same time we hear of 600,000 jobs being available in manufacturing, and constant cries from manufacturers for unskilled, semi-skilled and skilled labor. We hear further that a Washington D.C. think tank has warned that U.S. manufacturing is not as strong as recently portrayed by a congressional report.
In a March 2015 report “ U.S. Manufacturing in International Perspective,” the Congressional Research Service (CRS) suggested that the U.S. ‘has performed well in manufacturing compared to other high-income economies’ when viewed over the period 1990 to 2013. The Information Technology and Innovation Foundation (ITIF) said that the CRS report ‘paints a rosier picture of U.S. Manufacturing than is actually warranted’ and said that U.S. Manufacturing had in fact ‘barely recovered from the Great Recession.’
The ITIF report criticized several aspects of the CRS analysis: Manufacturing job loss, says ITIF, is higher than quoted by CRS, charging that the report used ‘unofficial data and a truncated analysis period’ to support a 12 percent loss of manufacturing jobs between 2005 and 2013, whereas ITIF, using Bureau of Economic Analysis data from 2000 to 2013, found U.S. manufacturing employment actually declined by 30.9 percent.
U.S. Manufacturing output: ITIF says the CRS report compares ‘raw U.S. manufacturing output to other nations and concludes that nothing is amiss,’ but when compared as a percentage of GDP, the U.S. performance was ‘stagnant at best.’ ITIF adds that data used in the CRS report were probably overstated and that ‘U.S. output probably decreased.’
Signs of growth in U.S. Manufacturing: the CRS report says there are encouraging signs for domestic manufacturing, such as strong manufacturing Research and Development (R&D), healthy Foreign Direct Investment (FDI) and a high percentage of domestic manufacturing. ITIF, however, says ‘when controlling for industrial composition, the results are much less favorable for R&D.’
ITIF further notes that Washington still needs to take action to strengthen manufacturing, such as a reduction of the effective corporate tax rate, a boosting of investment incentives – including for R&D – and better enforcement of global trade rules. There is also a need for manufacturing innovation and workforce development.
So what are we to conclude from these statements, some of which it appears are erroneous? Is it true that all these years after the end of the Great Recession little progress has been made in the U.S. Manufacturing sector? We think not and we think that there is enough demand out there in the U.S. and the rest of the big wide world that manufacturing will continue its onward growth, sometimes slowly, sometimes a little quicker, but ever onward. And as we have stated in previous issues, significant progress is continually being made in both the production and employment sectors of the U.S. manufacturing sector.
X. THE FINAL WORD
by Royce Lowe
There has been market chaos in the past few weeks, and there has been none-too-good news from the Chinese manufacturing sector for several months. Times are temporarily uncertain, as they often are. Calm will return, but we can’t rule out further temporary disruptions from whatever quarter.
We are very much wait and see.