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Our MoldMaking Business Index dipped well below the 50 line, indicating that business conditions in the moldmaking industry declined significantly in August. This decline may be the result of seasonal factor, so I am not ready to push the panic button just yet. The growth rate in the overall U.S. GDP data through the first half of 2013 was 1.8%, but it is steadily getting stronger. Consumer demand for durable goods remains in a long-term uptrend, and the moldmaking sector remains in a good position to experience an increase in activity levels as the overall economy builds momentum over the next few quarters. The labor market likely strengthened in August, as initial claims for unemployment insurance continued on their long-term downward trend throughout the month. The trend in the data for claims of unemployment insurance indicates that job cuts have abated during the past quarter. Once the employment data surpasses its pre-recession peak—forecast to occur right around the middle of next year—wage and salary growth will accelerate and provide increasing impetus for consumer spending.
Our latest survey of the North American moldmaking industry indicates that overall activity levels declined in August when compared with the previous month. The MoldMaking Business Index for August 2013 is 46.1 (a value less than 50.0 indicates a decrease in business levels for the month). The latest index value is a 3.5-point decrease from the July value of 49.6, and it is a 2.0-point decrease from the 48.1 value posted in August 2012.
This is the first time this year that the Index dipped significantly below the breakeven level of 50.0. And the underlying indicators suggest that business conditions were more negative than the topline figure indicates because New Orders were down substantially in August and Production levels also declined.
The good news is that this month’s reading for our MoldMaking Business Index is a stark contrast to many of the major indicators that measure overall manufacturing levels in the U.S. The ISM Manufacturing Index in August posted its highest mark for the year, coming in at a robust 55.7. Demand for autos remained strong in August, and the recovery in the residential construction and real estate data is still robust.
Other macro-economic data reported recently suggest that the recovery in the U.S. economy is actually gaining momentum. According to the Bureau of Economic Analysis' second estimate, GDP growth accelerated to 2.5% in the second quarter, a marked improvement from the advance estimate of 1.7%, and substantially higher than the 1.1% rate reported for the first quarter. A rise in exports and nonresidential investment spending combined with a decline in imports sparked much of the second quarter growth.
Taking a closer look at the categories that comprise our Index, the New Orders component was a disconcerting 43.6 in the latest month. Our Index is not seasonally adjusted, which means that a lot of the decline in August may be the result of planned shutdowns and vacations and not because of weakening market demand. Time will tell, so stay tuned.
The Production sub-index of 49.2 indicates that work levels decreased for the first time this year. With new orders lower and production levels flat-to-down we should expect the small decline that was reported in backlogs--the Backlogs sub-index slipped to 41.0. The Employment component was 50.4, which means that moldmakers’ payrolls were mostly steady, but the recent rate of expansion slowed.
The prices received in the moldmaking sector were steady-to-down in August, as the Prices Received sub-index was 49.6. The upward momentum in materials prices persisted but the rate of increase decelerated, as the Materials Prices sub-index came in at 59.3. Supplier Delivery Times reversed their recent trend of gradual expansion. This component posted a 47.4 in August. Offshore orders remain weak with the Exports sub-index coming in at 45.0.
The MoldMaking Business Index is based on a monthly survey of subscribers to MoldMaking Technology magazine. Using the data from this survey, Gardner Research calculates a diffusion index based on 50.0. A value above 50.0 for the index indicates that business activity expanded when compared with the previous month, and a value below 50.0 means that business levels declined.