There's just no way to sugar coat the impact of the economic downturn on the machine tool sector. While U.S. manufacturing technology consumption has picked up slightly from a 13-year low seen in January, there are few signs that things will strengthen markedly anytime soon. Even so, some are turning their hopes to "greener" pastures.
Investment in U.S. manufacturing technology rose 22.3 percent to $162.9 million in March vs. February, according to the latest data available, but still trails the March 2008 tally of $579.7 million by 71.9 percent, according to a joint report by the American Machine Tool Distributors' Association and the Association for Manufacturing Technology.
"There's no way or reason to try to sugar coat these numbers. They are the lowest since reporting began in 1996," Peter Borden, president of the distributors association, said of January's $95 million in investments, down 59 percent from the previous month and off 72 percent from $338 million a year earlier. Manufacturing technology investments totaled $397.6 million in the first quarter, down 68.6 percent from $1.26 billion in the same period last year.
"While a few small pockets of activity have continued, most everyone will be on the sidelines until there is some confidence and positive direction for the rest of the economy," Borden said. "No one knows where the bottom is and if a recovery will occur this year."
The monthly report analyzes manufacturing technology consumption as a leading economic indicator of manufacturers' investment in capital metalworking equipment.
R. Thomas Buffenbarger, president of the International Association of Machinists and Aerospace Workers union (IAM) in Upper Marlboro, Md., spoke just as plainly. "Machine shops are suffering. Most mom-and-pop shops do small-lot jobs, but they are supplying companies serving large original equipment manufacturers (OEMs)—automotive, agricultural and truck and trailer equipment suppliers," he said, and each of those sectors have curtailed production and closed plants.
Small shops also depend on community banks, which are having a hard time lending because of the difficulty they have in obtaining financing from larger regional and national banks, Buffenbarger said. "The economic crisis has had a cascading effect on small businesses" because it takes so much cash and borrowing to capitalize equipment and inventory.
Neil Gladstein, IAM's director of strategic resources, said he has "been getting calls once or twice a day from shops losing lines of credit or about their customers credit lines.
Some machine shops that service state and local governments also are seeing business decline due to budget cuts. "There is a lot of uncertainty out there. Many (shops) are hoping to hang on, and if not they are afraid they must close their doors," Gladstein said.
One bright spot is that "those shops making tooling for defense, especially engineering and prototyping, are doing OK," Buffenbarger said.
For members of the Precision Metalforming Association, many of whom have tool and die and machining operations in addition to stamping, forming and fabricating systems, "markets are weak," PMA president William E. Gaskin said. "For our segment, about half the industry serves the automotive market," followed by agricultural and off-road equipment, truck and trailer, appliance manufacturing, telecommunications and electronics, industrial and consumer hardware. "Most of those are soft except for defense and some residual strength in medical equipment."
In the automotive sector, build rates are expected to continue to lag. Not for the next three years will build rates match those experienced during the mid-2000s, Gaskin noted during a PMA auto suppliers conference earlier this year convened to compile build rate and vehicle sales forecasts through 2011.
"During the last six months, the focus (for metalformers) has been how to get to the other side of the current situation while sales are off an average of 35 percent and shop employment is down 38 to 39 percent," he said, noting that the automotive industry business makes up about half the consumption of metal stampings and assemblies.
For their outlook to improve, PMA members will want to see home sales and housing starts pick up, leading to better white goods sales, and a pickup in manufacturing that will lead to plant and equipment investment. Meanwhile, many are exploring opportunities in emerging or growing markets, including alternative energy processes and medical consumables.
"We hope the flow (of orders) starts coming back, but it won't be dramatic," Gaskin said.
Many PMA members worry that automakers and Tier 1 parts suppliers will enter bankruptcy protection, which would have a ripple effect, he said. "There could be a ton of bankruptcies in six to eight weeks—or none."
But Buffenbarger said IAM members are hoping federal infrastructure spending will create a need for fasteners, fixtures, weldings and other machine tool products. "If the money is disbursed quickly," maybe the squeeze on credit will loosen, he said. "Those making tools will benefit. We are ready to build them."
Gaskin hopes PMA members will find opportunities in the "green" economy as it develops "because metal is the most recyclable material." He cited a Cleveland roofing supplier that is pursuing work in framing and anchoring solar panels. For wind energy projects, opportunities include motor laminations and other metal components in generators. "Within the power grid, as they rebuild it into the Smart Grid, there is a lot of metal switches and fuses and the cabinets that hold all the electronic components, plus connectors."