With the manufacturing sector finally achieving growth in August for the first time in 18 months, manufacturers of machinery and machine tools are seeing better chances for a turnaround in their industry. However, some signs suggest that the machine industry has yet to catch up with the manufacturing sector as a whole, as improved consumption is being undercut by a continued decline in several key indicators.

According to the latest U.S. Manufacturing Technology Consumption (USMTC) report from the American Machine Tool Distributors' Association (AMTDA) and the Association for Manufacturing Technology (AMT), manufacturing technology consumption in the United States rose to $149.51 million in July 2009, an increase of 9.2 percent over June and following a 22 percent rise over May. It is the third consecutive month of positive growth.

On a regional basis, the largest gains were in the Central states, with July purchases rising 76.4 percent higher than June, while the Midwest rose by 9.4 percent over the previous month. The Northeast and West declined by 26.8 percent and 11.4 percent, respectively, while the South dropped 13.8 percent.

"We are pleased to see a third consecutive monthly increase in machine tool sales which indicates that we appear to be past the bottom," AMTDA President Peter Borden said in an announcement of the findings.

Despite the major upturn from the previous month's consumption, however, the year-over-year total was down 55.3 percent from the $334.14 million in sales reported in July 2008, while the 2009 year-to-date total of $910.42 million was down 68.3 percent from the same period in 2008, the USMTC reports.

Much of the year-long decline may be attributed to significantly lower levels of activity among machine shops in 2009. Results from the Agie Charmilles Machining Business Index, a survey of machine tool users regarding business activity over the previous quarter, showed that the April index reading of 47 was the lowest on record since 2004. (Readings of 50 or higher indicate growth.)

"Financial strength is likely to resume its decline due to the cumulative impact of lower sales and difficult collections on machine shop balance sheets. However, there are increasing signs of companies, at the least bottoming and, in many cases, starting to replenish inventories," Harry Moser, chairman of GF AgieCharmilles, said in a statement.

According to a recent report from the Department of Commerce, the seasonally adjusted value of machinery manufacturers' shipments fell from $23.3 billion in June to $22.6 billion in July, a month-to-month decline of 3 percent and a 19.8 percent drop over the same period in 2008. Industrial machinery fell by 6.4 percent, while turbines, generators and power transmission equipment decreased by 21.9 percent.

Likewise, the seasonally adjusted value of new machine orders dropped by 6.3 percent between June and July, although construction machinery orders grew by 5.3 percent, and mining, oil field and gas field machinery by 8.5 percent. The largest decline in new orders was among industrial machinery, which fell 24.3 percent. By contrast, total new orders for manufactured goods increased by 1.3 percent in July, bringing the overall increase to 5 percent over the last six months.

Although the manufacturing sector is gradually recovering, the machinery industry seems to be taking longer to reach a turnaround. This has some machine manufacturers calling for greater support from the federal government.

In a recent statement from AMT regarding the stabilization of the manufacturing sector, Kim Beck, AMT Board member and president of machinery firm Automatic Feed, emphasized the need for Congress to "target future programs aimed at stimulating the economy to where they will have the greatest impact — the manufacturing sector."

"What we really need now is tax relief for small business. Until Congress recognizes that this is the quickest and most effective way to stimulate our economy, true economic growth will remain elusive," Beck added.

Industrial machine manufacturers are not the only ones feeling the effects of the downturn, as the agricultural machinery sector has experienced similar setbacks. Both Caterpillar and Deere & Company, two of the country's largest machine and equipment producers, declined by approximately 34 percent in market value over the previous 12 months, according to TheStreet.com.

"Agricultural-machinery makers received a one-two punch when credit markets iced over and demand dried up," TheStreet.com explains.

Packaging machinery has also gone through a downturn. A September study from the Packaging Machinery Manufacturers Institute (PMMI) found that total shipments of packaging machinery decreased by 0.4 percent to $5.89 billion in 2008, the first drop in seven years. Likewise, domestic sales fell 2.5 percent.

However, the long-term outlook for the machine and machine tool industry may be more optimistic considering the gradual recovery of the manufacturing sector as a whole.

Exports are already beginning to pick up, rising by 2.2 percent to reach $127.6 billion in July, the Associated Press reports. Although these figures are still relatively low compared to the July 2008 export values, they do reflect "big increases in shipments of civilian aircraft, computers, industrial machinery and medical equipment."

A recent report from the National Association of Manufacturers (NAM) notes that the capacity utilization rate in manufacturing is currently at 65.5 percent, meaning that a considerable portion of production capacity remains idle in the U.S. NAM claims that "[u]ntil demand picks up to boost the utilization rate in manufacturing sufficiently, demand for business equipment such as industrial machinery will likely remain soft."

Earlier: U.S. Manufacturing Finally Turns Around

Resources

July Manufacturing Technology Consumption Up 9.2%
Association for Manufacturing Technology / American Machine Tool Distributors' Association, Sept. 14, 2009

Machine Shops' Activity at Record Low Level
Agie Charmilles LLC, April 2009

Full Report on Manufacturers' Shipments, Inventories and Orders: July 2009
U.S. Department of Commerce, Sept. 2, 2009

Manufacturing Technology Producers Greet Recent Economic News with Cautious Optimism
Association for Manufacturing Technology, Aug. 4, 2009

Machinery Double Whammy: Industry Insight
by David MacDougall
TheStreet.com, Aug. 24, 2009

2008 U.S. Packaging Machinery Shipments Down 0.4%; End Year at $5.885 Billion
Packaging Machinery Manufacturers Institute, Sept. 15, 2009

The Turning Tide: Prospects for a Manufacturing Recovery
National Association of Manufacturers, Sept. 7, 2009

Trade, Jobless Figures Show Recession Fades
by Christopher Rugaber
The Associated Press, Sept. 10, 2009

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