Industry Scuttlebutt

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?

A man rides a motorcycle through earthquake-ravaged Ishinomaki City, Japan.

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3 thoughts on “Industry Scuttlebutt

  1. AvatarScott

    In the late 90’s people asked me why I was keeping my small, cheap 1991 model year 4 cylinder car when there were so many larger, more powerful options available at affordable prices. Well, I still drive that (now) 20 year old car every day and it still gets 30MPG and still looks modern enough while doing it…

    Im actually very excited about the upcoming direct injection, high compression, low displacement turbo engines I’ve been reading so much about lately. 200HP out of 1.4 litres and 40mpg in a car that weighs less than a 2700 lbs? Yes please.

     
  2. AvatarLynn G. Schneider

    It is interesting because being a small shop I expect cycles. From my experience they are usually in the 2 to 3 to 4 month range and then things change again from the baseline of too much, just right, to too little. I have evolved and adapted around this experience. My advise here is stay on battle lines when things get tough and never, never, ever expect the cavalry to be comming to your rescue. It is just you and your few who will either make it to the next sunny day or they will be playing taps over your graves.

     
  3. AvatarBrian "Dwight" Hoff

    Odd that folks with a very strong opinion about a public figure try to use a lot of “data” to support their strong opinion. But the data is incomplete, biased, and basically unintelligible in the manner presented. I would agree that many, many economic issues exist in the USA. And they have been growing for a very, very long time. I would not agree that the blame for today lies on one doorstep of a guy hired 2 years ago. The failures are systemic to an entire nation of people. Blaming one person, one party, one administration may feel good & is easy, but the real root causes are broad and feel bad because, on average, we’re part of the problem.

     

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