The disappointing numbers coming out of the economic stat providers on unemployment and purchasing manager sentiment confirm what we’ve been seeing since the gasoline run-up and the Japan earthquake—business in the second quarter is decidedly weaker than the first.
The Precision Machined Products Association noted the slowdown in their recent survey of members. Graff-Pinkert has seen several orders evaporate because clients in auto-related businesses are waiting for production schedules to stabilize. The recent financial results of AutoNation, the huge dealership consortium out of Fort Lauderdale, indicated that their Japanese car sales fell apart last quarter with Lexus off 60%. Domestics are holding their own, but pickup truck sales are off significantly and car buyers are making a rapid shift to 4-cylinder engines.
Anecdotally, I have been surprised how hooked in our machinery customer base is to Japanese carmakers. It used to be when Detroit sneezed the vendors caught cold. Today that comment can be expanded to Tokyo and soon Seoul with Hyundai gobbling market share. The slowdown in China caused by higher bank interest rates is also affecting the machining business.
The weak dollar has pushed up the price of oil and fear of flooding at refineries supposedly held up the wholesale price of gasoline, but the speculators cannot hold the price up forever with dwindling demand even as we nudge into the summer driving season.
Consumer confidence has plummeted as the press plays up weak home selling prices. The banks are not taking advantage of the Fed’s loose money policy to lend, although there is plenty of money for speculators to bounce the commodity markets. Mortgage rates tied to the 10-year bond (currently at 3%) have fallen steeply, but so few people are buying homes it hardly matters.
The economy can flourish without robust home sales, though employment will stagnate without new construction and deteriorating public sector jobs. But for the machining world to prosper today we can be happy with rising automotive production, thriving agriculture, terrific energy and mining markets, and growing medical products demand.
Put it all together and throw in the depreciation tax write-offs that may end this year and I see a lazy summer rolling into a rocking fourth quarter. Don’t get sucked into the chasm of pessimism.
Question: Have you noticed a second quarter slowdown?