Like many other websites, articles, and blogs that end the year by taking a look back, I'm going to do the same here. In this case, I want to focus on some recent articles I read on the state of manufacturing and the economy as 2015 comes to a close.
Basically, I want to explore whether manufacturing continues to expand in the economy, or are we starting to see a slowdown. We will do this by comparing three different reports, and different depths of information; the over all manufacturing economy, leading indicators to job shops and machining, and a view at one specific type of manufacturing.
Institute for Supply Management (Bigger Picture)
From the Institute for Supply management November report, they state that the overall national manufacturing has contracted this November for the first time in 36 months. "Economic activity in the manufacturing sector contracted in November for the first time in 36 months, since November 2012, while the overall economy grew for the 78th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®."
Of the 18 manufacturing industries tracked, five showed growth in November while ten a decline. Of the ten that showed a decline, several are key industries for job shops, machining, and the CADCAM industry, such as; machinery, fabricated metal products, and plastic products.
If you read the whole article, the consensus is that the overall economy is still growing, but for the first time in three years, overall national manufacturing has shown a contraction.
USMTO News Release (Medium Picture)
U.S. Manufacturing Technology Orders, or USMTO, tracks metal cutting, forming and fabricating orders. All industries important to the traditional CADCAM person. Many people consider the purchase of this equipment as a leading indicator of the overall economy. If companies are purchasing capital equipment, then they must have orders for jobs that requires this equipment, which means there is confidence in sales of final products yet to be released.
The Association for Manufacturing Technology's report from December 14 reports that, "orders for manufacturing technology in October 2015 were down 0.3% from September and year to date were down 17.4% compared to the same point in 2014"
Below is a chart of the Manufacturing orders with a 3 month and 12 month running average. This chart is from the AMT's Dec 14 USMTO report.
You can see the 12 month moving average is still fairly high, but the 3 month average is trending down, yet overall the values are still higher than the whole period from 2001 to 2008.
Also reported and of interest is, "the number of net manufacturing jobs dropped by 1,000 while the larger economy added 211,000 jobs." Any contraction in the manufacturing workforce is especially interesting if we accept the position that there are manufacturing jobs available in the United States which are yet to be filled.
MoldMaking Business Index (More Macro View)
Mold making is one area of manufacturing which requires expertise for complex parts, and associated with job shops. It is a logical place to see what is happening in the field of custom manufacturing.
The Gardner Business Index for October, 2015, reported on December 10th states, "With a reading of 44.8, the MoldMaking Business Index showed that the industry contracted in October for the fifth month in a row, with the contraction rate having consistently accelerated in each of those months. The index generally has trended lower since February 2015, and in October, the industry contracted at its fastest rate since December 2012."
Additionally of interest are their comments regarding how the contraction rates are different based on the size of the company, "The index for companies with more than 250 employees has jumped dramatically to 71.0 from 41.7 in August. Since October 2014, these larger companies have expanded rapidly. All other plant sizes struggled in September and October, however, and the smallest facilities, those with fewer than 50 employees, contracted at their fastest rate since early 2013."
What does all of this mean?
Honestly I don't know. I think we won't see large growth rates like we saw in 2011 and 2012. If you missed that rise, you missed out, same as if you didn't invest in the stock market in 2010, doing so now may not get you the gains others received.
What is unknown is whether the manufacturing investment portion of the economy will continue to contract, or will level out. If you tend to believe the economy moves in cycles every 8-10 years or so, then we would look for some more contraction in the coming year.
Many times I've seen the cycle where some job shops, especially the smaller ones, go out of business during the downturns in the economy. The Moldmaking Business Index reported that of the contraction, small shops have been affected the most, and I believe that is a common cycle.
Large, complete, packages of jobs go to large shops. Often these large shops specialize in producing the physically large tooling portions of those jobs, and sub contract a lot of the smaller work to smaller shops. When there is a small downturn in the economy, the large shop keeps more of the work they ordinarily subcontract in house, and the small job shop suffers.
Seriously, if you are a job shop, you have to stay competitive. You have to use your flexibility as an advantage to provide better timing at the same or better costs than what the large shop can do them. You can't do this if you still do everything the same way you did it ten or even five years ago.
First get educated, get up to date on the latest trends in machining, tooling and software. Something as simple as changing fixturing, or how you set up you mill, can save you hours each week.
Old, outdated software can be an anchor from taking advantage of newer, time saving machining strategies, especially in roughing. It may not provide the confidence to run unattended. If it's based on old technology, it may calculate too slow and not allow you to stay ahead of your jobs. If it's using an old interface, it may take too much time programming. Old technology may not provide the high surface finish possible with newer products. If you want to check out easy to use CAM functions, that is modern and up to date, check out some HSM products. If you need really advanced CAM functionality, check out the offerings from Delcam.
Technology in cutting tools has advanced, and their material removal rates are the highest they have ever been. If not faster, some tools can provide a better finish, which your customer will appreciate, as well as all downstream operations.
Here at CAD CAM Zen, we wish you a happy and profitable 2016.
What do you think is going to be the economic trend in manufacturing for 2016?
What advice do you have for shops going forward?
Post a comment; let us know what you think.