Weekly Industry Crib Sheet: Autos and Aerospace to Boost Industrial Fastener Market

November 25, 2013

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U.S. demand for industrial fasteners is forecast to increase 4.3 percent per year to $14.8 billion in 2017, according to a report from Freedonia Group. Growth will be driven by improved outlooks in a majority of the industries in which industrial fasteners are utilized, in particular the automotive and aerospace sectors.

The U.S. motor vehicle market is expected to experience above-average yearly growth through 2017, the report notes. Modest increases in motor vehicle production through 2017 will be a major turn-around from the output declines posted during the 2007 to 2012 period. However, many motor vehicle manufacturers, in an effort to reduce weight and simplify production, continue to aim to decrease the number of fasteners required per vehicle. Still, fastener producers can find growth by offering lighter and more durable product designs, as well as specially designed fasteners for the rapidly growing electric and hybrid vehicle market.

While not forecast to match the growth of standard products, aerospace-grade fastener sales will fare better than during the 2007-2012 period. Manufacturers will benefit from increases in commercial aircraft production. The total volume of fasteners required per aircraft will shrink due to the growing use of composite materials in manufacturing. However, this will be partially offset by sales of higher-value fastening products designed specifically for use with composites.

The market for standard fasteners is expected to outpace aerospace-grade fastener sales through 2017. This will largely be a reflection of the improved conditions in the motor vehicle market, which uses primarily standard fasteners. Externally threaded and application-specific standard fasteners will post the fastest gains through 2017, although the outlook is positive for every major product category.

Shipments of industrial fasteners from U.S. manufacturers are expected to lag compared to the growth in domestic demand. Gains will be supported by improved market conditions and the reshoring of some fastener-requiring manufacturing operations. Still, U.S. manufacturers can expect competition from foreign suppliers to remain intense. The trade deficit in industrial fasteners will expand as import growth slightly outpaces export growth.

Manufacturing Stalling in U.S. and Abroad

American manufacturers expanded production this month, but factory hiring continued to lag, according to recent surveys. Economies in Europe and China failed to fare much better as business activity and manufacturing there slowed.

The data suggest the global recovery is limping along and the world’s largest economies still face daunting challenges. Factory output in the U.S. rebounded this month, after sinking to a one-year low in October, according to the Markit “flash,” or preliminary U.S. Manufacturing Purchasing Managers Index (PMI).

“However, even this pace of expansion is barely generating any employment growth,” said Chris Williamson, chief economist at Markit, in a press release on the PMI data.

The U.S. economy grew faster than expected in the third quarter, surprising economists who expected some negative ripples from the 16-day government shutdown last month.

The flash PMI for U.S. manufacturing rose to an eight-month high of 54.3 this month, a substantial increase from the one-year low of 51.8 in October. Expansion was indicated in new orders, new export orders, and backlogs of work.

The PMI is based on monthly surveys of select companies. Readings above 50 on the index signal expansion; below 50 indicates a business contraction.

“The resilience of the manufacturing economy in the face of headwinds such as the shutdown and fiscal wrangling will add to the call for policy to be tapered,” Williamson stated, referring to Federal Reserve Board policy.

However, the recent drop in inflation to its lowest since October 2009 suggests that the Fed will be in no rush to tighten policy, he maintained.

The composite output index for Markit’s 17-country eurozone declined from 51.9 in October to 51.5 last month. The composite PMI for Germany rose to its highest level since January, signaling a seventh consecutive month of growth. In contrast, the composite for France dropped to its lowest point since June.

“Any improvements (in the euro zone) were largely confined to Germany,” Williamson stated. “France, on the other hand, showed further signs of being the ‘sick man of Europe’ with output showing a renewed decline and raising the risk that GDP could fall again in the fourth quarter, constituting a renewed recession.”

The PMI for China dipped from October’s final reading of 50.9 to the flash index of 50.4.

“China’s growth momentum softened a little in November,” noted Hongbin Qu, a chief economist at HSBC bank, pointing to weak new export orders and a slowing pace of restocking activity. “That said, this is still the second-highest PMI reading in seven months.”

Philadelphia Fed Drops More than Expected

Manufacturing growth in the mid-Atlantic states significantly decelerated this month, according to the business outlook survey conducted by the Federal Reserve Bank of Philadelphia.

The Philadelphia Fed’s index of general business activity covering factories in the region plummeted from 19.8 in October to 6.5 this month. The decline surprised analysts who expected the index to dip to about 15.0.

The data still indicate positive developments in the manufacturing sector -- readings above zero on the index signal expansion.

Factory hiring in the region also slowed substantially. The employment index plunged to 1.1 this month from 15.4 in October.

“We had a flattening out of the number this month, down closer to zero,” said Philadelphia Fed Senior Economic Analyst Mike Trebing during a news conference. “We’re reading that as pretty much steady employment.”

The share of companies in the survey that reported an increase in hiring fell to 13 percent this month from 23 percent in October, Trebing said. The employment index has shown more positive readings during the past four months, he said.

Nonetheless, manufacturers in the region remain optimistic about future employment, with more than one-third expecting to add workers during the next six months, the Philadelphia Fed reported.

Price Producer Index Fell in October

The seasonally adjusted Producer Price Index (PPI) for finished goods fell 0.2 percent in October, marking the second consecutive month the index fell, according to Bureau of Labor Statistics (BLS).

While prices for passenger cars spiked by 1.7 percent, the largest gain since 2009, the index for light motor trucks slipped to 0.1 percent.

Intermediate materials, supplies and components fell 0.4 percent -- marking the largest drop since a 0.6 percent decline in April. The BLS report also indicates that prices for intermediate energy goods, accounting for two thirds of the October decrease, edged down 1.2 percent. Finished energy goods moved down 1.5 percent.

Meanwhile, the drop in prices received by U.S. farms, factories, and refineries matched economist predictions, according to Reuters.

"Sluggish demand is keeping inflation under wraps, which could likely see the Federal Reserve sticking to its monthly $85 billion bond-buying program at least through March as it tries to stimulate demand through low interest rates,” the news agency reported.

New Jobless Claims Continue to Dip

The number of Americans applying for first-time unemployment benefits fell 21,000 last week to a seasonally adjusted 323,000, the Labor Department said Thursday. Economists see it as a sign of improvement in the labor market, as businesses have trimmed back on layoffs.

The less volatile four-week average fell 6,750 to 338,500, the third straight week of declines. Both figures are near pre-recession levels.

Figures for unemployment had been falling for weeks as layoffs relating to the 16-day government shutdown and the backlog of unprocessed claims in California have worked their way through the system.

The continued declines were aided by an unexpected boost in hiring in October -- 204,000 jobs. But the pace of hiring still does not match the amount of layoffs week after week.

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